According to IFS research, one in five taxpayers (7.8m) will pay income tax at 40% or above by 2027/28. This represents a near-quadrupling of the share of adults paying higher rates since the early 1990s.
The report, A deepening freeze: more adults than ever are paying higher-rate tax (I Delestre & T Waters, 16 May 2023), states that the six-year freeze to income tax allowances and thresholds will play a major role in expanding the reach of higher rates over the coming years. Other findings include:
In 1991/92, 3.5% of UK adults (1.6m) paid the 40% higher rate of income tax. By 2022/23, 11% (6.1m) were paying higher rates, with that figure set to reach 14% (7.8m) by 2027/28.
Of that 14%, 3.1% of adults (1.7m) will face marginal tax rates of either 45% or 60%, which is almost as large a share as paid the 40% higher rate at the start of the 1990s.
That means that for the 40% rate to impact the same fraction of people as it did in 1991, the higher-rate threshold would need to be nearly £100,000 in 2027/28 – almost double its actual level of £50,270.
The IFS report concludes: ‘In the space of 40 years, higher rates of income tax will have gone from a feature of the tax system reserved only for the top few percent, to one that impacts a far more substantial proportion of the population, drawing in a sizeable fraction of people working in jobs not typically thought of as very highly paid – such as nurses, teachers and electricians. Increasing the scope of higher tax rates to encompass a larger share of the population is not necessarily undesirable – choices in this area reflect the government’s priorities around work incentives and redistribution. However, freezing thresholds and allowing the tax system to be arbitrarily shaped by the vagaries of inflation rate fluctuations is not a sensible way to make tax policy. Moreover, the fourfold increase in the share of adults facing a 60% marginal tax rate between 2010/11 and 2023/24 (with further increases forecast) is part of an unwelcome proliferation in marginal income tax rate “spikes”’ for those with high incomes that has occurred over the last decade. The withdrawal of child benefit for those earning above £50,000 and of the free childcare entitlement for those earning above £100,000 (to give just two examples) both create marginal tax rates well in excess of 40% for those affected and risk generating distortions and inefficiencies in taxpayer behaviour.’
According to IFS research, one in five taxpayers (7.8m) will pay income tax at 40% or above by 2027/28. This represents a near-quadrupling of the share of adults paying higher rates since the early 1990s.
The report, A deepening freeze: more adults than ever are paying higher-rate tax (I Delestre & T Waters, 16 May 2023), states that the six-year freeze to income tax allowances and thresholds will play a major role in expanding the reach of higher rates over the coming years. Other findings include:
In 1991/92, 3.5% of UK adults (1.6m) paid the 40% higher rate of income tax. By 2022/23, 11% (6.1m) were paying higher rates, with that figure set to reach 14% (7.8m) by 2027/28.
Of that 14%, 3.1% of adults (1.7m) will face marginal tax rates of either 45% or 60%, which is almost as large a share as paid the 40% higher rate at the start of the 1990s.
That means that for the 40% rate to impact the same fraction of people as it did in 1991, the higher-rate threshold would need to be nearly £100,000 in 2027/28 – almost double its actual level of £50,270.
The IFS report concludes: ‘In the space of 40 years, higher rates of income tax will have gone from a feature of the tax system reserved only for the top few percent, to one that impacts a far more substantial proportion of the population, drawing in a sizeable fraction of people working in jobs not typically thought of as very highly paid – such as nurses, teachers and electricians. Increasing the scope of higher tax rates to encompass a larger share of the population is not necessarily undesirable – choices in this area reflect the government’s priorities around work incentives and redistribution. However, freezing thresholds and allowing the tax system to be arbitrarily shaped by the vagaries of inflation rate fluctuations is not a sensible way to make tax policy. Moreover, the fourfold increase in the share of adults facing a 60% marginal tax rate between 2010/11 and 2023/24 (with further increases forecast) is part of an unwelcome proliferation in marginal income tax rate “spikes”’ for those with high incomes that has occurred over the last decade. The withdrawal of child benefit for those earning above £50,000 and of the free childcare entitlement for those earning above £100,000 (to give just two examples) both create marginal tax rates well in excess of 40% for those affected and risk generating distortions and inefficiencies in taxpayer behaviour.’
