Older women hit by tax increases

The scheme has been phased out but still affects an estimated 100,000 women

By Sarah Toyne BBC News Online personal finance reporter

Many older married women and widows who pay a reduced rate of National Insurance contributions will see their payments rise by 26% from 2003, BBC News Online learns.

There are about 100,000 women who pay a reduced rate of NI contributions, because they have elected to pay the "married women's reduced rate".

The rate is currently charged at 3.85% well below the standard rate of employees NI, which is currently 10%, but they will have to pay 4.85% from 2003 - an increase of more than a quarter.

From April 2003, their payments will incur an additional 1% of all earnings above £4,615, the same as all employees, employers and self-employed workers.

'Unfair' increases

It was not clear in Wednesday's Budget if these women would be affected by the across the board increase, but a source at the Treasury confirmed to BBC News Online on Friday that their payments would go up as well.

Further details will be given when the National Insurance Contributions bill is published next week.

The scheme is known as the "Married Women's Reduced Rate Election".

The scheme was closed to new entrants in 1978, and for women to qualify they must not have stopped work for more than two consecutive years.

Women who joined the scheme do not get a pension in their own right, but their pension will be based on the contributions their husbands have made.

'Grossly unfair'

Many of the women who joined the scheme will be aged 50 and upwards - and nearing retirement.

The move was criticised by accountants.

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants said the rise was disproportionate and discriminatory.

Mr Roy-Chowdhury told BBC News Online: "It is a very disproportionate increase on those paying the lower rate . It is grossly unfair and evident that the government wants to get as much money it can from taxpayers.

"Many of these women are nearing retirement. The last thing they want to do is have their finances upset by this rise."

The move means that someone paying the reduced rate and earning an average income of £21,400 year will pay £167.85 more in NI payments from April 2003. In total, their contribution will be £831.40 from 2003.

A higher earner - someone with an income of £40,000 a year - will pay £1,013.51 up to the upper earnings threshold of £30,940.

They will continue to pay 1% beyond the upper earnings threshold, which is an additional £90.60. In total they will now pay £1,104.11.