More than 1 million UK taxpayers were forced into the highest income tax bracket last year as frozen thresholds collided with rising wages and inflation. This “stealth tax” effect has sparked debates over fairness, economic growth, and long-term fiscal policy.
How Frozen Tax Thresholds Dragged More Earners into Higher Rates
Since 2021, the UK government has frozen income tax thresholds—the income levels at which higher tax rates apply—until 2028. While not an outright tax hike, inflation and wage growth have effectively pushed more earners into the 40% and 45% tax brackets.
Key frozen thresholds:
– Higher-rate threshold (40% tax): £50,271 (unchanged since 2021)
– Additional-rate threshold (45% tax): £125,140 (unchanged since 2021)
With average wages rising 6% in 2023, many professionals now pay more tax despite no real-terms increase in purchasing power.
Who’s Paying the Highest Tax Rate?
HMRC data reveals a dramatic surge in top-rate taxpayers:
– Additional-rate taxpayers (45%): 1.1 million in 2022-23 – up 95% from 629,000 in 2021-22.
– Higher-rate taxpayers (40%): 6.1 million – a record high, up from 4.4 million in 2019-20.
Most affected professions:
– Finance, tech, and healthcare workers (strong wage growth)
– Senior teachers, nurses, and middle managers (now crossing £50,271)
Political and Economic Fallout
Critics call frozen thresholds a “hidden tax rise,” costing taxpayers £52 billion extra by 2028 (IFS estimate). Key concerns:
– Reduced disposable income for middle- and high-earners
– Risk of talent relocation or reduced workforce participation
Chancellor Jeremy Hunt defends the policy as necessary for post-pandemic recovery, but opposition parties demand reforms.
Future of UK Tax Policy
With a general election approaching, proposals include:
– Labour: Reviewing thresholds for fairness
– Conservatives: Facing pressure to adjust thresholds
– Economists: Suggest indexing thresholds to inflation
For now, taxpayers face a “fiscal drag“ where wage growth—not policy changes—determines their tax burden.
The Bottom Line
Frozen tax thresholds have reshaped the UK’s tax landscape, pulling over 1 million more people into the 45% bracket. Whether this remains policy or sees revision will depend on the next government’s priorities.
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