More than 10 million people will be higher rate taxpayers within two decades as the 40p band becomes the “norm” for millions of middle class workers, according to analysis by the Office for Budget Responsibility (OBR).
When it was introduced 25 years ago, just one in 20 workers had to pay it but now people such as teachers and senior nurses are amongst those who are set to pay the top rate, if the current £41,865 threshold rises in line with inflation.
Currently, some 4.6 million people pay the 40p rate and 300,000 pay the 45p additional rate for those earning more than £150,000; roughly one in six of the near 30 million-strong workforce.
The OBR said that because earnings are expected to rise more quickly than prices in the long term, due to productivity growth, this would result in the average tax rate rising steadily over time as more income moves into higher tax bands.
However, the organisation also calculated that if the threshold were to rise in line with earnings instead, 4.6 million fewer people would be dragged into the higher rate.
Senior Conservatives, such as former Chancellor Lord Lamont, agree that increasing the higher rate of tax should be “a top objective for a Conservative government” after the election, as it was intended to hit the richest people in the country, not secretaries and middle management.
Meanwhile, John Redwood MP said that the people being dragged into the 40p rate are not high earners by any stretch of the imagination. He added that he hopes the Conservative manifesto will be a tax cutters’ manifesto because lower rates mean that more tax revenue can be collected.
However, a Treasury spokesman said that the Government has taken significant steps to help hardworking people keep more of the money they earn.