Get set for Brown's double whammy

If you earn £40,000 a year, April holds a nasty surprise. Your national insurance bill will rise by £33.66 a month. Couple this bill with the government's decision to freeze personal allowance thresholds for national insurance and income tax and allow a hefty hike in council tax - most authorities are voting for a double-digit rise - and you could be more than £500 a year worse off.

You also face a double whammy as your income will be too high to qualify for most benefits arriving at the same time.

National insurance contributions (nics) are to rise by 1% from April 6. Unlike previous nics rises this one will apply to workers' gross income rather than be limited to the £585 a week cap (£30,940 a year). The Chancellor Gordon Brown expects to raise £8bn from the move, which will also apply to employer's national insurance contributions.

Employees have a contribution rate that is currently set at 10%. For someone on average earnings of £21,500 the increase to 11% will add £170 to their tax bill. Employers face a rise from 11.8% to £12.8%.

When Mr Brown announced the rise last November accountants Grant Thornton pointed out that he had already frozen the lower limit and raised the upper earnings limit earlier in the year. Together with the 1p in the pound rise, it said, middle income earners will be hit hardest.

John Whiting, of accountants PricewaterhouseCoopers, says the rise in nics is a charade to avoid raising income tax. "Officially nics are not a tax but a contribution towards benefits. But in the duck theory - if it looks like a duck, walks like a duck and quacks like a duck, it's a duck - nics are undoubtedly a tax."

Critics of the Chancellor's move also say the rise in nics subdues protests. Few people understand the terminology surrounding nics or how they are calculated.

The Inland Revenue will collect the tax following its takeover of the contributions agency and is known to be under pressure to maximise the cash coming into the treasury. It has already fought pitched battles with IT consultants who avoided paying nics when the set up limited companies and paid themselves in dividends. Dividends must be declared for income tax but are free from national insurance contributions.

Construction industry firms are also known to have devised schemes that propel middle managers into roles as directors and shareholders for the purposes of tax. They are then paid largely in dividends, thus avoiding nics payments.

Mr Whiting says more exotic ways to sidestep nics have been used in the past, including paying bonuses in fine wines and "intriguing substances such as platinum sponge" but these are now banned under avoidance rules.

He says the prospect of a huge tax rise is likely to drive more people to try and avoid paying.

Companies will also be spurred to dream up avoidance schemes, one of which centres on the company pension scheme. If an employee is paid £100 and contributes £5 to the pension scheme, nics are due from the employer and employee on £100.

But if the scheme rules are altered to cut the employee's pay down to £95 and the employer makes an additional £5 contribution to the scheme, nics will be due from both sides on £95.

Multiplied several times, the £5 a month saving by both employee and employer can quickly add up to a big tax saving.

Claimants brought to book

Millions of benefit claimants will be prevented from using their current account at their local post office when a project to scrap pension and benefit books goes live next month.

Four of Britain's biggest banks - HSBC, Halifax, Royal Bank of Scotland and NatWest - have refused to sign agreements allowing their customers to use post offices like a bank branch and withdraw cash from their current account.

From April, the government will force 14 million benefit claimants to accept electronic payment of pensions and other benefits. Many benefits are already paid directly into bank accounts, but Post Office boss David Mills says three million people are likely to set up separate post office accounts, many of them because their bank prevents them from getting their hands on their benefit cash without going to a branch or ATM.

Despite post office closures, 94% of the population lives with a mile of a post office and more than £450m has been earmarked to stop more post offices shutting their doors.