More than one million UK households are now facing the highest rate of income tax, as a prolonged freeze on thresholds pulls middle earners into the 45% bracket.
The Stealth Tax Creep
Official figures reveal that 720,000 additional people were dragged into the additional rate band during the 2024-25 tax year, pushing the total number of taxpayers facing the 45% rate to over one million. This significant jump is a direct result of the government's decision to freeze the point at which the top rate becomes payable.
The 45% additional rate was first introduced by the Conservative Party in 2013, initially applying to incomes over £150,000. However, in a move that has dramatically widened the tax net, Chancellor Jeremy Hunt lowered this threshold to £125,140 in April 2023 and froze it at that level until 2028.
The Inflation Disparity
Analysis by Bowmore Financial Planning highlights the growing burden on taxpayers. Had the original threshold kept pace with inflation, the 45% rate would today only apply to earnings exceeding £211,562. This stark contrast means that two-thirds of those currently paying the top rate would have been spared.
John Clamp, a chartered financial planner at the firm, stated: "The way that this stealth tax has operated for 12 years means more and more people are being dragged into paying the highest rate of tax." He emphasised that the policy now impacts people earning almost £100,000 less than the inflation-adjusted intended level.
Economic Consequences and Official Response
Experts warn this fiscal drag is having a tangible effect on the UK's economic vitality. Mr Clamp told the Financial Times that the policy is "discouraging ambition and hard work," adding, "It’s perhaps unsurprising productivity is stagnating. If extra work barely boosts take-home pay because of frozen tax bands, people are less inclined to work longer hours or push themselves — and that ultimately drags on the economy."
In response, a Treasury spokesperson defended the system, stating: "The UK’s income tax system is highly progressive with an internationally high personal allowance." They noted that the figures relate to the 2022 Autumn Statement from the previous government and that the current administration "inherited the previous government’s policy of frozen tax thresholds and lowered additional rate threshold."
