An analysis of tax receipts shows that the loss of tax reliefs is one reason for the dramatic increase in the proportion of the UK’s total tax being paid by a minority of high earners.
Analysts believe that Chancellor Philip Hammond will continue this “tax creep” in his Budget this week to bolster the tax take, and could follow the trend set by his predecessor, George Osborne, to reduce tax perks for the better off.
According to the analysis, the number of higher-rate taxpayers, meaning those earning between £45,001 and £150,000, rose from 3 million to 4.2 million between 2010 and this tax year. Meanwhile, the number of those on £150,000 or more rose to 364,000 from 236,000. In addition, the number of taxpayers earning more than £250,000 has risen from 100,700 in 2010-11 to 137,300 in 2014-15, the last year for which data is available.
If the fact that, at the other end of the income scale, millions of people have dropped out of the tax net altogether is added to the equation, this will mean that the highest one per cent of earners now contribute almost 30 per cent of tax.
As former pensions minister, Sir Steve Webb, points out, if Chancellor Philip Hammond is looking for a way to bring in more tax from the people who pay the most, then there is likely to be a further reduction in the ‘taper’ – the amount higher earners can save in pensions while attracting tax relief.
The new taper rules mean that the annual £40,000 allowance for pensions is limited for higher earners. This occurs on a sliding scale, with individuals losing one pound of their allowance for every two pounds by which their earnings exceed the £150,000 threshold, until the earnings reach £210,000, when their annual allowance is cut to £10,000.
As Sir Steve points out, there would be little outcry against a change in the taper but if the £150,000 limit were reduced to £125,000, it would raise around £250 million in revenue.
