Rising Tax Burden: More Middle-Class Workers Caught in Higher Tax Brackets
The number of higher-rate taxpayers in the UK has surpassed five million for the first time, marking a significant shift in the tax landscape. According to recent official data, an additional 680,000 people were pulled into the 40 percent tax bracket in 2022/23 compared to the previous year. This rise in higher-rate taxpayers comes amidst concerns that Labour’s Shadow Chancellor, Rachel Reeves, may extend the controversial freeze on income tax thresholds in her upcoming mini-Budget, despite assurances of no new tax hikes.
The Fiscal Drag on Middle-Class Workers
Economists argue that maintaining this freeze would significantly increase the financial strain on millions of working families, particularly those already struggling with rising living costs. The freeze on tax thresholds—originally introduced in 2021 by former Chancellor Rishi Sunak—was intended to help address the financial gaps left by the pandemic. Initially set to end in 2026, the freeze was extended to 2028 by Chancellor Jeremy Hunt.
Typically, income tax brackets rise with inflation to prevent “fiscal drag”—the process where individuals are pushed into higher tax brackets as their incomes increase with inflation, even though their purchasing power remains stagnant. However, with the current freeze, many middle-class workers are now facing higher taxes as their salaries rise, effectively reducing their disposable income.
Higher-Rate Taxpayers: The Numbers Are Growing
According to HM Revenue & Customs, the number of people paying the higher rate of income tax (40 percent on earnings over £50,271) reached 5.1 million in 2022/23, a 15 percent increase from the previous year. These taxpayers now make up 15 percent of all income taxpayers and account for a significant 35 percent of the total income tax revenue. Economists warn that this is just the beginning, with the total number of higher-rate taxpayers expected to rise to nine million by 2028. Some even speculate that the figure could reach ten million by the end of the decade if the freeze is extended.
Impact on Economic Incentives
This growing number of higher-rate taxpayers is causing concern among economists. Julian Jessop, an economist, called the surge “just the tip of the iceberg.” He warned that without intervention, the continued freeze could drag an additional four million people into the higher-rate tax band by 2028, leading to a total of ten million higher-rate taxpayers.
The freeze in tax thresholds, combined with high inflation, means that more and more people who are not traditionally considered wealthy are now subject to higher rates of tax. Tom Clougherty, Executive Director at the Institute for Economic Affairs, highlighted the economic consequences of this trend. Since 1990, the percentage of the adult population paying the higher or additional tax rate has tripled. Clougherty emphasized that higher taxation on middle-income workers reduces the incentive for people to increase their earnings, which in turn hampers economic growth and dynamism.
Political Uncertainty Ahead
As Chancellor Rachel Reeves prepares to announce the mini-Budget later this month, speculation is mounting about her next moves. Despite her promise of no new tax hikes, the extension of the tax threshold freeze could become an unavoidable decision. This is particularly concerning as the government’s fiscal position has been strained, with the Office for Budget Responsibility (OBR) expected to confirm that Reeves’ £10 billion of fiscal headroom has been depleted since the last Budget.
Calls for Tax Relief
The freeze on tax thresholds has led to widespread calls for reform. Darwin Friend, from the TaxPayers’ Alliance, has criticized the increasing number of taxpayers falling into the higher-rate tax bracket. He argued that the 40p tax rate is becoming increasingly unreasonable, as more people are forced to pay it despite not having high incomes. He called for urgent action to raise the 40p threshold to provide relief for struggling workers.
The freeze in the personal allowance threshold—meaning that income up to £12,570 is not taxed—has also contributed to the rise in taxpayers. The HMRC figures show that 1.5 million more people are now paying income tax due to this freeze.
Looking Ahead: The Need for Tax Reform
As the number of higher-rate taxpayers continues to climb, it is becoming clear that the current tax system is putting pressure on an increasing portion of the workforce. Experts argue that there needs to be a long-term strategy to address the rising tax burden, reduce disincentives to work, and create a more straightforward and fair tax system. Without action, the UK risks stifling economic growth and exacerbating the financial challenges faced by millions of middle-class families.
As the government navigates these complex fiscal issues, the direction of tax policy in the coming months will be critical in shaping the financial future of many UK workers.
higher-rate taxpayers
Rising Tax Burden: More Middle-Class Workers Caught in Higher Tax Brackets
The number of higher-rate taxpayers in the UK has surpassed five million for the first time, marking a significant shift in the tax landscape. According to recent official data, an additional 680,000 people were pulled into the 40 percent tax bracket in 2022/23 compared to the previous year. This rise in higher-rate taxpayers comes amidst concerns that Labour’s Shadow Chancellor, Rachel Reeves, may extend the controversial freeze on income tax thresholds in her upcoming mini-Budget, despite assurances of no new tax hikes.
The Fiscal Drag on Middle-Class Workers
Economists argue that maintaining this freeze would significantly increase the financial strain on millions of working families, particularly those already struggling with rising living costs. The freeze on tax thresholds—originally introduced in 2021 by former Chancellor Rishi Sunak—was intended to help address the financial gaps left by the pandemic. Initially set to end in 2026, the freeze was extended to 2028 by Chancellor Jeremy Hunt.
Typically, income tax brackets rise with inflation to prevent “fiscal drag”—the process where individuals are pushed into higher tax brackets as their incomes increase with inflation, even though their purchasing power remains stagnant. However, with the current freeze, many middle-class workers are now facing higher taxes as their salaries rise, effectively reducing their disposable income.
Higher-Rate Taxpayers: The Numbers Are Growing
According to HM Revenue & Customs, the number of people paying the higher rate of income tax (40 percent on earnings over £50,271) reached 5.1 million in 2022/23, a 15 percent increase from the previous year. These taxpayers now make up 15 percent of all income taxpayers and account for a significant 35 percent of the total income tax revenue. Economists warn that this is just the beginning, with the total number of higher-rate taxpayers expected to rise to nine million by 2028. Some even speculate that the figure could reach ten million by the end of the decade if the freeze is extended.
Impact on Economic Incentives
This growing number of higher-rate taxpayers is causing concern among economists. Julian Jessop, an economist, called the surge “just the tip of the iceberg.” He warned that without intervention, the continued freeze could drag an additional four million people into the higher-rate tax band by 2028, leading to a total of ten million higher-rate taxpayers.
The freeze in tax thresholds, combined with high inflation, means that more and more people who are not traditionally considered wealthy are now subject to higher rates of tax. Tom Clougherty, Executive Director at the Institute for Economic Affairs, highlighted the economic consequences of this trend. Since 1990, the percentage of the adult population paying the higher or additional tax rate has tripled. Clougherty emphasized that higher taxation on middle-income workers reduces the incentive for people to increase their earnings, which in turn hampers economic growth and dynamism.
Political Uncertainty Ahead
As Chancellor Rachel Reeves prepares to announce the mini-Budget later this month, speculation is mounting about her next moves. Despite her promise of no new tax hikes, the extension of the tax threshold freeze could become an unavoidable decision. This is particularly concerning as the government’s fiscal position has been strained, with the Office for Budget Responsibility (OBR) expected to confirm that Reeves’ £10 billion of fiscal headroom has been depleted since the last Budget.
Calls for Tax Relief
The freeze on tax thresholds has led to widespread calls for reform. Darwin Friend, from the TaxPayers’ Alliance, has criticized the increasing number of taxpayers falling into the higher-rate tax bracket. He argued that the 40p tax rate is becoming increasingly unreasonable, as more people are forced to pay it despite not having high incomes. He called for urgent action to raise the 40p threshold to provide relief for struggling workers.
The freeze in the personal allowance threshold—meaning that income up to £12,570 is not taxed—has also contributed to the rise in taxpayers. The HMRC figures show that 1.5 million more people are now paying income tax due to this freeze.
Looking Ahead: The Need for Tax Reform
As the number of higher-rate taxpayers continues to climb, it is becoming clear that the current tax system is putting pressure on an increasing portion of the workforce. Experts argue that there needs to be a long-term strategy to address the rising tax burden, reduce disincentives to work, and create a more straightforward and fair tax system. Without action, the UK risks stifling economic growth and exacerbating the financial challenges faced by millions of middle-class families.
As the government navigates these complex fiscal issues, the direction of tax policy in the coming months will be critical in shaping the financial future of many UK workers.
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