One in five taxpayers will be paying higher-rate income tax by 2027, as frozen thresholds bite households, according to the Institute for Fiscal Studies (IFS).
Over recent decades, higher rates of income tax have gone from being reserved only for the richest to something that a far more substantial proportion of the population, including some teachers, nurses and electricians, can expect to encounter, it said.
By 2027-28, 7.8 million people are projected to be paying income tax at 40 per cent or above.
This equates to around a fifth of taxpayers and one in seven of the adult population – representing a “seismic shift” and around a quadrupling of the share of adults paying higher rates since the early 1990s – the IFS said.
In 1991-92, 3.5 per cent of UK adults (1.6 million) paid the 40 per cent higher rate of income tax. By 2022–23, 11 per cent (6.1 million) were paying higher rates, the report added.
Biggest tax rises since 1979
The six-year freeze to income tax allowances and thresholds which started in April last year could become the single biggest tax-raising measure since former chancellor Geoffrey Howe hiked VAT in 1979, according to the institute.
The freeze will also compound challenges facing the many workers whose earnings are not keeping up with inflation, the IFS said.
The report predicted: “By 2027–28, more than one in eight nurses, one in six machinists and fitters, one in five electricians and one in four teachers are set to be higher-rate taxpayers.
“Among police officers, architects and surveyors, and legal professionals, we also see significant increases in the share paying higher-rate tax over time, with almost half of the latter two groups expected to be paying higher-rate tax in 2027-28.”
The standard personal allowance is £12,570, which is the amount of income someone does not have to pay tax on.
For the 40 per cent 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 – nearly double the level set by the UK Government at £50,271, the report added.
Tories’ playbook
Commenting on the findings, Marina Purkiss said the trick is straight out of the Tories’ playbook.
“You see, this is what they do. Tell you they are the party to lower your taxes. Accuse the opposition of plotting to raise them. All while conducting the biggest tax raid in 44 years by stealth.”
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