High-rate taxpayers increase by 20 per cent

The number of higher-rate taxpayers in Britain has increased by more than 20 per cent over the past five years, due to the Government's failure to raise the income tax thresholds in line with wage inflation.

According to new statistics by the accountants UHY Hacker Young, more than 3.7 million UK citizens have a marginal tax rate of 40 per cent, up from 3 million in 2002/03. In the current tax year, the 40 per cent rate applies to earnings above £39,825 a year.

Although the Government has increased income tax thresholds in line with inflation every year since 1977, wages have increased much quicker in recent years. UHY says that average wages have risen by 20.8 per cent over the past five years, while the higher-rate income tax threshold has increased by just 15.7 per cent.

"This is a stealth tax that has received very little attention," said Roy Maugham, a partner at UHY. "The vast majority of people who have moved into the higher tax bracket have quite modest lifestyles and purchasing power.

"Just like inheritance tax, the Government has been quite content to see those on relatively modest incomes get caught by a tax that was meant to target the rich."

A Treasury spokesman said the growing number of people paying higher-rate tax was merely a sign of Britain's economic success. "The basis of a fair, progressive income tax system is that as individuals' real income rises, the average tax they pay goes up," the spokesman said. "The increase in the number of higher-rate taxpayers is a sign of economic success and increased national prosperity. Since 1997, there are 2.6 million more people in employment and over twice the number of people earn over 30-, 50- and 100-thousand pounds. At the same time, thanks to tax and benefit reforms introduced by this Government over the last 10 years, this year households will be £1,000 better off in real terms on average."