Research Economists at the Institute of Fiscal Studies (IFS) have forecast a damning result for the government's policy of 'Fiscal Drag'.
Back in 1991/92, only 1.6 million UK adults (equivalent to 3.5%) were paying the 40% higher rate of income tax. However, the number has significantly increased over the years and by last year, 2022/23, it reached 6.1 million, which is equivalent to 11% of the adult population.
The upward trend of higher rate taxpayers is showing no slow-down.
The reason behind this is the successive policy to freeze tax allowances and brackets over the last six years. Whilst this on the face of it does not seem like a tax rise, the effect of inflation and/or income growth then pushes people into the frozen brackets - which, otherwise would have shifted with inflation.
It's not the normally considered 'highly paid professions' that are now being classed as higher-rate taxpayers. New research shows 25% of teachers, 20% of electricians, 13% of nurses and 17% of machinists will be firmly in the higher-rate tax bracket come 2027.
At the same time near half of surveyors and those in the legal trade and will be paying at least 40 percent tax on their gross earnings.
In the last UK Budget the personal tax-free allowance remained stuck at the previous year's £12,570. In addition, the higher rate tax threshold remained fixed at £37,700.
These two figures have now remained the same since April 2021. Though, if you check they were only marginally increased from even the year before, April 2020 - by £70 and £200, respectively.
So, if we take the April 2020 bands as an example and apply RPI inflation to them, we can show what these tax free allowance and higher rate allowance should be closer to now.
The £12,500 personal allowance from April 2020 should be £15,687 in April 2023 (RPI Adjusted) - but it is instead £12,570 - £3,117 less.
The £37,500 higher rate threshold from April 2020 should be £47,061 in April 2023 - but it is instead £37,700 - £9,361 less.
The RPI figures (obtained from the property stats website NiceAreas.co.uk via the BoE) show that between April 2020 and April 2023 there has been total monetary inflation of 25.50 percent.