More than 1.8 million of the poorest workers will be forced to pay more than 60 per cent tax on thousands of pounds of their income once proposals announced in Gordon Brown’s last Budget are enforced, a new figure in yesterday’s Budget revealed.

Accountants calculate that the scrapping of the 10 per cent tax rate, coupled with the increase in the proportion of tax credits withdrawn from higher earners, will leave many workers earning between £6,500 and £15,000 paying an effective tax rate of up to 70 per cent.

Employees who work 30 hours a week on the minimum wage earn about £8,200 a year. Treasury figures released in the Budget showed that the number of people who will pocket £4 or less for every extra £10 that they earn above £6,420 will rise to 1.87 million in April, an increase from 1.68 million last year. In 1998, only 760,000 people were affected.

Low earners are set to lose out because the 10 per cent starting rate of tax, which is levied on the first £2,230 of taxable income, will be scrapped. Workers will have to pay the new basic rate of 20 per cent tax instead.

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• Need to know: Budget 2008

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In addition, the rate at which tax credits are withdrawn from workers is set to increase from 37 per cent to 39 per cent. This means that from April they will lose 39p tax credit for each extra £1 they earn over £6,420. Once these burdens are added to national insurance, which is levied at 11 per cent on earnings between £4,860 and £40,040, the total tax take is 70 per cent.

Mike Warburton, of Grant Thornton, the accountant, said: “We have been concerned that the effect of tax credits was a disincentive to work, and the figures released today show that to be the case. It seems crazy that people on the lowest income pay the highest rates of tax.” Bill Dodwell, of the accountant Deloitte, said: “The people stuck in this tax grey area have limited incentives to increase their earnings.”

A spokesman for HMRC said: “There is a small group of people affected by the loss of the 10 per cent rate, but two thirds of that group will receive extra benefits to compensate. You are always going to be better off in work than not in work. In part the increase in the figures is because of the introduction of tax credits in 2003.”

The tax credits system has attracted criticism since it was introduced. A complicated method of calculating the payments resulted in billions of pounds being paid out mistakenly to claimants. The clawback of these payments left many families in financial trouble as they found themselves with a debt to repay.

Last year, Ann Abraham, the Parliamentary Ombudsman, said that overpayments were inevitable because of the way the system was set up, with annual calculations of claimants’ benefit based on past income. Tax credit overpayments have averaged between £1.5 billion and £2.2 billion a year.

Ms Abraham criticised “the unduly harsh nature” of HMRC’s formula for deciding when to claw back an overpayment, which meant that it sought to recover the money in the vast majority of cases, causing extreme worry to many families on low incomes.

Last week a committee of MPs demanded to know why senior civil servants at HMRC had been awarded 60 per cent rises in their bonus payments despite the tax credits fiasco.

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