Top rate taxpayers set to increase fivefold by 2029

THE number of people paying the top 45p rate of income tax will soon be five times higher than when it was introduced by Gordon Brown, the government’s official forecaster has warned.

When Labour’s last prime minister launched the additional rate in 2010, 236,000 people paid it. Official forecasts from the Office for Budget Responsibility suggest that by 2028-29, the number will have reached 1.29 million. The increase is mainly the result of Jeremy Hunt’s decision last year to reduce the threshold at which the top rate is paid from £150,000 to £125,140. Another factor is that the Chancellor said the rate would be frozen for the next few years, dragging more people into the 45p band as wages increase.

The Liberal Democrats, who analysed the figures, said the Tories face a “Blue Wall backlash” from voters angry that a Conservative government has widened the net of the top rate of tax by five times since they took office in 2010. They said affluent voters would desert them in droves for what they called the “stealth tax” of unfrozen thresholds. But yesterday, Greg Hands, the trade minister, suggested tax thresholds could be unfrozen in the March budget or be a pledge in the Tory election manifesto.

He said: “There’s still a series of decisions to be made on future tax rates, future tax thresholds, and that’s properly a matter not for me today on your programme but for the Chancellor on March 6 and future fiscal events and indeed a general election manifesto later this year.”

Today, a huge tax cut comes in, with National Insurance rates cut by 2p, saving the average worker £450 a year. But critics say this is offset by other tax rises introduced in the past five years.

The Lib Dem analysis comes days after news that Dominic Cummings, Boris Johnson’s former chief adviser, had twice met Rishi Sunak and urged him to cut income tax. He called on the Prime Minister to reverse tax rises introduced by Mr Johnson and raise the 40p income tax threshold from £50,271 to £100,000. The call was this week backed by supporters of Liz Truss, whose own mini-budget scrapped the 45p rate altogether.

However, this was reversed by Mr Hunt, and in April last year he significantly increased the number of people paying the 45p tax band by reducing the threshold from £150,000 to £125,140.

The Lib Dem analysis said there are now 909,000 additional rate payers, up from 421,000 at the start of the parliament in 2019-20. That is an increase of 116 per cent in four years. It found that at the last election, only 1 per cent of income tax payers paid the additional rate. Now, the figure is 3 per cent. In 2025/26, the number of people paying it will exceed a million for the first time.

Sarah Olney, the Lib Dem Treasury spokesman, said the Tory Party faces a “Blue Wall backlash” in affluent areas in the Home Counties where people are being hit hard by tax hikes – areas now under threat from her party.

Last night a Treasury source said: “Let’s not forget: a once in a generation pandemic and Putin’s energy shock meant we had to borrow £400 billion to support families and businesses.

"But now we’ve turned a corner with inflation down, wages rising and the economy growing, we can start cutting taxes again.”

Official forecasts suggest number of people who hit 45p threshold will reach 1.29 million in five years