Taxpayers in Birmingham saw the amount of income tax they pay increase 14% faster than their income over the last year, according to researchers.

Latest statistic from UHY Hacker Young, the Birmingham based accountancy firm, shows Birmingham residents’ income tax jumped 3.7% to £3,670 on average for the tax year 2007/08 whilst their income increased by just 3.2% to £22,500.

UHY Hacker Young says that the faster increase in income tax in Birmingham is partly due to ‘fiscal drag’.

Fiscal drag is when the threshold at which the starting point of income tax after personal tax allowances, and also the higher rate tax threshold, are raised at a slower rate than the increase in earnings. With the thresholds rising at a much slower rate than earnings a higher percentage of a worker’s income is swallowed by taxes. This is often described as a “stealth tax”.

Malcolm Winston, partner at UHY Hacker Young in Birmingham, comments: “The growth in the amount of income tax paid by Birmingham residents highlights the Government’s failure to link income tax thresholds with wage inflation. The result is that some are paying a higher percentage of tax on their income even if tax rates haven’t changed.”

“The new Government should undertake the commitment to link tax thresholds with pay inflation to make tax more transparent.”

Solihull saw the fastest increase in income tax of all the West Midlands boroughs with an average increase of 9.3% in income tax to £5,500 2007/08 whilst its average income was up 5.9% to £28,700.

Wolverhampton on the other hand saw a decrease in income tax. In 2007/08, Wolverhampton residents paid £2,880 in income tax, a decrease of 0.3% on the previous year. Over the same period, Wolverhampton residents’ income rose 2.1% to £19,600.

In the West Midlands as a whole, the average income grew by 3.3% between 2006/07 and 2007/08 to £22,000 but tax allowances only increased by 3.8% in the same period. The average income tax, meanwhile, rose by 3.5% to £3,520.