Nurses, teachers and police officers among 7.8M dragged into 40p tax
Thousands of nurses, teachers and police officers will be swept up in the 40 pence tax bracket as part of the biggest stealth raid in decades.
A report released today warns that one in five taxpayers will pay the higher rate by 2027 due to the government’s controversial freezing of tax thresholds.
A total of 7.8 million people will pay 40 pence in tax – almost five times what it was in the early 1990s, when it was seen as a tax reserved for the wealthy.
The news sparked new calls for Rishi Sunak and Jeremy Hunt to cut the tax burden, which is the highest since World War II.
Ex-minister Simon Clarke said: ‘We think we are now suffering from our income tax, but this analysis shows that the worst is yet to come.
This graph shows how people could be swept deeper into tax rates in the coming years if their salaries rise just in line with CPI inflation, as predicted by the OBR in March
This chart shows estimates for how much tax people will pay in 2023-24, compared to what would have been owed if thresholds had risen with inflation since 2021
This graph shows that in the early 1990s, no nurses and about 5–6% of machinists, electricians, and teachers paid a higher tax rate. But by 2027-2028, more than one in eight nurses, one in six machinists and mechanics, one in five electricians and one in four teachers will be senior taxpayers
By 2027-2028, 3.1% of adults (1.7 million) will pay a marginal rate of 60% or 45% – only slightly less than the percentage of adults who paid the 40% higher rate in the early 1990s.
The IFS said higher rate earners will have to pay £1,000 more in tax in the 2023-24 tax year, compared to this year. The yellow line shows the likely impact at the end of the freeze period
The news sparked new calls for Prime Minister Rishi Sunak (pictured) and Jeremy Hunt to lower the tax burden
“We need to cut spending and taxes to ease the strain on household finances, and we need to have a moment to make it clear to the public that our current economic trajectory is simply unsustainable.
“That effort needs to start before the next election, and we need to put in place a clear plan to lower income tax rates and unblock the thresholds at which people pay the different rates to reflect the hidden effects of inflation.”
David Jones, another former cabinet minister, added: ‘People of relatively modest means are being pulled into higher tax brackets by fiscal impediments, a time-honored Labor technique that Conservatives should never use.
“Jeremy Hunt will no doubt want to remedy this and pursue his stated ambition to become a low-tax chancellor.”
Tory MP Marcus Fysh said: ‘Conservatives want to encourage growth and reward hard work by taxing the money people earn less than the other parties.
“I am for tax cuts that increase supply, reduce inflationary pressures and enable productivity growth.”
Former Brexit chief negotiator Lord Frost, who confirmed over the weekend that he wanted to become a Tory MP, will tell a conference tomorrow that the party must not be distracted from cutting “tax, spending and regulation”.
The tax threshold freeze introduced last year by Mr Sunak and extended by Mr Hunt (left) will be the largest single tax increase since VAT nearly doubled to 15 per cent in 1979.
The figures come today in a report from the Institute for Fiscal Studies (IFS) think tank, which shows that the tax threshold freeze introduced by Mr Sunak and extended by Mr Hunt last year will be the largest single tax increase since the VAT reduction. nearly doubled to 15 percent in 1979.
The study suggests that the tax threshold would need to be nearly doubled from just over £50,000 to nearly £100,000 to bring the tax bracket back to the level it’s intended for.
And it warns that a quarter of all teachers and one in eight nurses will be paying the higher rate by 2027.
The IFS report said the tax grab would exacerbate the pain for people whose incomes have not kept pace with inflation, adding: “An increasing number will find themselves pushed to pay higher tax rates, even if their income has not grown enough to keep up. with inflation.
People who become less affluent in real terms over the next five years may nevertheless face higher income tax rates than at the beginning of the period.
“By 2027-2028, more than one in eight nurses, one in six machinists and mechanics, one in five electricians and one in four teachers will be senior taxpayers.
Former cabinet minister Simon Clarke said the worst tax burden was ‘yet to come’ and the Conservatives needed to cut income tax rates
Marcus Fysh MP (pictured) said: ‘Conservatives want to encourage growth and reward hard work by taxing the money people earn less than the other parties’
“Among police officers, architects and surveyors and legal professionals, we are also seeing a significant increase in the proportion paying higher taxes over time, with nearly half of the latter two groups expected to pay higher taxes.”
Mr Sunak announced a four-year freeze on income tax thresholds in the wake of the pandemic to help public finances recover from the £400bn spent on Covid.
Mr Hunt extended the freezes for another two years in November, meaning they now remain unchanged until 2027/8.
Critics warn that rising inflation means the policy will pay more than intended, with millions of people being swept into higher tax brackets.
The IFS found that an additional 2.1 million will be dragged along to pay higher taxes, with another 400,000 to pay the top rate of 45 pence.
By 2027/2028, 7.8 million people will pay higher taxes, up from just 1.6 million 30 years ago.
A spokesman for the Treasury Department defended the freeze, saying most taxpayers benefit from a tax-free allowance of £12,570, which has risen faster than inflation in recent years.
They added: “After borrowing billions to support the economy during the pandemic and Putin’s energy shock, we had to make tough decisions to restore public finances and reduce debt. It is essential that we stick to this plan to halve inflation this year and get our economy growing again.”
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