Osborne plays safe to the squeezed middle This Autumn Statement was a package of carrots and sticks. For the "squeezed middle," there was a promise of a small temporary brake on fiscal drag, the process by which more people are pulled into the tax net as thresholds fail to rise in line with prices or earnings. After years of freezes and even reductions, the rate at which 40 per cent personal taxation kicks in will rise 1 per cent for two tax years starting in April 2014 - a rise in absolute terms, but a cut in real terms that will push more 20 per cent taxpayers onto the higher rate. Lower earners will pay less income tax, however, as the personal allowance - the income level at which most people start paying tax - will rise to £9,440 in April 2013. This will bring it within "touching distance," as the chancellor put it, of the £10,000 level pledged in the 2010 Coalition Agreement. The exempt amounts for capital gains tax and inheritance taxes will also rise by 1 per cent - potentially less than inflation - in 2014 and 2015 respectively. For pension savers, the amounts that can be invested into schemes with tax relief are to be cut. The lifetime allowance comes down from £1.5m to £1.25m (it was £1.8m two years ago), while the annual allowance is reduced to £40,000 in a widely trailed move, although it will only become effective in 2014. George Osborne, the UK chancellor, presented this as something that will affect primarily the very well-off, pointing out that the average person saves just £6,000 a year into a pension. But the reality is that many higher earners and people with long service in a defined-benefit scheme could face a supplementary tax liability, especially if their income rises. This change was offset by changes to the limit on capped drawdown, a move that was broadly welcomed by pensions experts. Those who opt to keep their pension pot invested, rather than converting it to annuity, may now withdraw 120 per cent of the amount an equivalent annuity would generate each year, rather than 100 per cent. Mr Osborne ruled out further taxes on property, prompting a rueful shake of the head from Nick Clegg, deputy prime minister, but did produce a surprise by stating that the government will consult on allowing shares traded on Aim, London's junior stock market, to be placed within individual savings accounts, a popular tax-efficient wrapper. The government had previously been opposed to this on the grounds that smaller company shares are too risky and might undermine the Isa brand. Aim shares qualify for business property relief, so gains are exempt from inheritance tax provided they have been held for two years or more. For those at the very top, though, there are many more sticks than carrots. Not only are high earners more likely to be affected by changes to the pension tax relief allowances, they do not benefit from a personal allowance (it tapers away for those earning more than £100,000 a year) and there are small changes to the detail that close loopholes, such as the move to cap income tax reliefs that were previously unlimited.