By -Published On: May 20, 2023-Categories: Business-
What caught my eye this week.
One reason you hear more people complaining about high taxes these days is because more people are paying higher-rate taxes.
At the start of the 1990s, just 3.5% of UK adults were in the upper tax band. That wasn’t exactly fun – and there was a recession coming, with a big housing crash imminent. But least those 1.6 million higher-rate payers could console themselves they were members of an earning elite, of sorts.
Loadsamoney? Not any more. We’ve only just begun to slog through a six-year freeze on tax thresholds that is set to send the number of higher-rate taxpayers to 7.8 million by 2028.
If nothing else it should be a boom time for tax accountants.
The higher-rate threshold today starts at £50,570. For the same share of the population to be paying higher-rate taxes as were in 1991, the IFS calculates the threshold would need to be nearer to £100,000 in 2028.
As things stand it will be… £50,570.
There’s an argument that a broader tax base is more equitable and sustainable, I suppose. But good luck raising it in the midst of raging inflation, rising mortgage rates, and disquiet over the state of the public services, especially healthcare.
People can see their money doesn’t go as far as it used to with their own spending, and they’re impatient with what they’re getting for their taxes too.
The UK economy is stagnant and ONS figures show productivity growth has slipped to the lowest level in a decade. (At least energy bills are set to fall – a windfall for both our wallets and also the State purse, given the energy price guarantee.)
Thanks to high inflation and the frozen thresholds, some will even find their incomes go nowhere in real terms1 over the next few years – yet they’ll be taxed more heavily on the top slice of what they do earn, because they’ll be dragged into a higher-rate tax bracket.
So much for where we’re at today. But if you’re currently a basic-rate tax payer, do you think you’ll be dragged into the higher-rate bracket by 2028?
And if you’re already paying higher-rate taxes – perhaps even the marginal rates the crazy system introduces – are you taking evasive action (such as diverting more salary into your SIPP) to curb the damage?
Let us know in the comments below, and have a great weekend!
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