Britons face biggest tax rise since 1979, think tank says
2023.05.15 19:46
© Reuters. FILE PHOTO: The City of London financial district lies in the distance as people sit atop Primrose Hill in London, Britain, April 17, 2023. REUTERS/Henry Nicholls
By Suban Abdulla
LONDON (Reuters) – Britons face the biggest tax-raising drive since the start of former prime minister Margaret Thatcher’s term of office in the coming years as more people are pushed into paying the top rate of income tax, a leading think tank said on Tuesday.
The independent Institute for Fiscal Studies (IFS) said 7.8 million people or 14% of adults will pay income tax at 40% or more on some of their income from the 2027/28 financial year, up from 11% in 2022/23 and just 3.5% in 1991/92.
Britons pay income tax at a rate of 20% on income over 12,570 pounds ($15,865) a year and 40% on income over 50,270 pounds with a higher rate beyond that.
Prime Minister Rishi Sunak and finance minister Jeremy Hunt froze the thresholds in November until 2028 as part of a plan to repair the public finances after huge borrowing by the government during the COVID-19 pandemic.
The freeze, which first came into force in April 2022, represented the largest single tax-raising measure since 1979 when Geoffrey Howe, then Thatcher’s chancellor of the exchequer, nearly doubled the rate of value added tax to 15%, the IFS said.
Isaac Delestre, an IFS research economist, said inflation’s recent surge was pushing up nominal earnings of many workers and dragging them into the higher tax rate bracket.
The Conservative Party pledged not to increase income tax rates in its 2019 election manifesto.
Sunak and Hunt’s budget move followed a chaotic period when former Prime Minister Liz Truss and her finance minister Kwasi Kwarteng created turmoil in markets with plans for 45 billion pounds unfunded tax cuts.
The IFS said a greater share of public sector workers such as nurses and teachers, who are among those taking industrial action over pay and conditions, were set to become higher-rate taxpayers.
The freeze would also contribute to the squeeze on living standards, it said.
“A third of the expected record fall in household incomes this year is likely to be a result of this tax rise,” the IFS said.
Sunak, who is expected to call a national election next year, has said he wants to cut taxes when possible.
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