27 June 2024
If you are covering HMRC's latest income tax statistics, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“This morning’s statistics from HMRC reveal the continued impact of the Conservative government’s stealth tax agenda, as the number of people being pulled into the higher and additional rate tax brackets has continued to soar as a result of frozen tax thresholds and the ongoing impact of fiscal drag.
“The number of higher rate taxpayers increased to 6.31 million in the 2024/25 tax year, up from 6 million in 2023/24. To put this further into perspective, there were just 4.43 million higher rate taxpayers in 2021/22.
“Meanwhile, the number of additional rate taxpayers has seen a further spike, rising to 1.13 million in 2024/25. This is up from 950,000 in 2023/24 and almost double the 520,000 seen in 2021/22.
“This continued upward growth in higher and additional rate taxpayers comes as no real surprise given income tax thresholds are set to be frozen until 2028. The pandemic had a profound impact on the economy, and so too has the subsequent cost of living crisis, both of which caused a surge in wage growth due to a combination of factors including increased demand for certain jobs, supply chain disruptions, and inflationary pressures. However, despite this wage growth, the rate at which someone starts to pay higher rate tax has barely changed, moving from £50,000 to only £50,270 for the tax year 2021 to 2022 and remains that way. What’s more, the additional rate threshold was lowered from £150,000 to £125,140 from April 2023 which will have contributed heavily towards this rise.
"Given the Office for Budget Responsibility initially projected there would be 6.7 million higher rate and 1.1 million additional rate taxpayers by 2027-28 as a result of frozen income tax thresholds, the fiscal drag impact has far surpassed any original expectations the government had and we will continue to see the government's coffers be topped up exponentially as more and more people are pulled in.
"These figures paint a picture of a tax system in need of re-evaluation. As income tax thresholds remain frozen amidst higher wages and inflation only just returning to the Bank of England’s 2% target, the government's original policy intentions will be far surpassed, piling pressure on taxpayers. Though nominal salaries have increased, the purchasing power of these wages have remained stagnant or even decreased for some, and an increasing number of individuals are subjected to higher tax rates and in some circumstances a loss of benefits.
“Crucially, neither of the main political parties has pledged to thaw the frozen tax thresholds. The next administration faces a critical decision of whether to recalibrate tax thresholds or risk perpetuating a system that risks stifling economic growth and unfairly targeting those struggling to keep up with living costs."
