There are fears Chancellor Rachel Reeves could extend her earnings threshold freeze (Image: Getty)
The number of higher-rate taxpayers has exceeded five million for the first time, with concerns middle-class workers could be targeted further. A freeze on thresholds has seen more earners dragged into the higher tax band.
New figures from HM Revenue & Customs show in the 2022-23 tax year, there were 5.1 million people paying the higher rate - 15% more than the previous year. Five years earlier, there were 4.2 million people paying the higher rate. There are fears Chancellor Rachel Reeves could extend her earnings threshold freeze in her mini-Budget later this month.
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Economists have warned the latest figures are just “the tip of the iceberg” (Image: Getty)
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Economists told the Daily Mail such a move would increase the financial burden for millions, disincentivise hard work and impact struggling families.
They warned the latest figures are just “the tip of the iceberg”.
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An income tax rate of 40% applies to earnings over ￡50,271.
This threshold has been frozen at the 2021-22 level and as it stands will remain in place until April 2028.
Most thresholds introduced have been due to rise in line with inflation.
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The freeze was introduced under the last Tory government and saw more people dragged into the higher tax band as wages increased.
Another freeze in the personal allowance threshold – which means income up to ￡12,750 is not taxed – resulted in 1.5 million more people paying income tax in 2022-23.
So-called “fiscal drag” is said to be behind the rise in higher-rate taxpayers.
Economist Julian Jessop told the Mail: “The jump in the number of higher-rate taxpayers is just the tip of the iceberg.
“The continued freeze on personal tax allowances could drag another four million people into the net by 2028. Moreover, there is already speculation that Rachel Reeves will extend the freeze for another two years in an emergency budget later this month.
“This could take the total number of higher-rate taxpayers to ten million.”
The Shadow Chancellor has also expressed concerns that working families are being hit hardest with just weeks until Labour’s National Insurance hike begins.
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In an opinion piece for City AM, Mel Stride said: “The clock is ticking. We’re now less than four weeks away from the implementation of Labour’s disastrous jobs tax.
“But let’s be clear about who is really paying the price for the Labour Chancellor’s latest tax grab: working families.”
A Treasury spokesperson said: “We are committed to keeping taxes for working people as low as possible and so, at the Budget, we announced that we will not extend the freeze on personal tax thresholds and we are keeping our promise to not raise the basic, higher or additional rates of Income Tax, employee National Insurance or VAT.
“We know the cost of living crisis is not over so we have stabilised the economy which has helped to bring down mortgage payments, prioritized growth that puts more money in working people’s pockets, frozen fuel duty and are raising pensions and the minimum wage.”