Successive Conservative chancellors from Rishi Sunak to Jeremy Hunt have frozen income tax thresholds for the past four years.
The policy results in what is known by economists as “fiscal drag” – when tax thresholds do not keep up with the rising cost of living, pulling more people into higher tax brackets.
This raises a lot of money for the government. Last November, the OBR estimated that an additional £26bn would be raised by freezing the income tax personal allowance at £12,570 and higher rate threshold at £50,270, relative to allowing the tax brackets to rise in line with inflation.
This visual explains the process of fiscal drag and how more people have been quietly pulled into higher tax rates over the past decade. Scroll down to see the changes over time.
Number of taxpayers in each gross annual income group
2012-2013
In the financial year 2012-13, the earliest year for which we have data, 25.7 million people in the UK were in the basic 20% band of tax — 84% of all income tax payers.
2013-2014
2013-14 saw the most recent change in income tax rates, when the additional rate of income tax – on incomes over £150,000 – fell from 50% to 45%.
2016-2017
Three years later, 83% of the population was in the basic band of tax. At this point, 14.1% of taxpayers paid a higher rate of 40% on incomes over £43,001.
2019-2020
Since this year, the salary at which people pay the higher rate of tax hasn’t changed. People start to pay a higher rate of 40% on incomes over £50,000. It is at this point that we can see a big increase in the fiscal drag effect.
2020-2021
The fact that these thresholds hadn’t changed since 2019-20 meant that, since then, more people slipped into higher rates of tax. Even in just this one year, the proportion of people in the higher rate of tax increased from 12.2% to 12.6%.
2022-2023
HMRC has not yet published detailed data for income tax distribution for the last two financial years. But income tax thresholds have not changed in this time. We still have headline figures for the number of taxpayers paying each rate of tax, however.
2023-2024
HMRC has published projections for the overall number of taxpayers in each tax band, allowing us to see fiscal drag in effect. The figures reveal that, as a result of these frozen thresholds since 2019-20, the proportion of taxpayers paying the higher rate of tax has increased from 12.2% to 15.6% – or by 28% in four years.
The data on historical income distribution and taxpayer figures is sourced from freedom of information responses from HMRC, and was compiled from the Survey of Personal Incomes. The original income distribution data is grouped into £1,000 bins in the chart. The numbers of working-age population are rounded to the nearest thousand. The highest income band (£350,000) has no upper bound. Data for pay bins for which the number of people is not available – due to small, negligible or not applicable sample size – is treated as zero.
While the numbers included in the piece show all income tax payers including state-pension earners, the chart plots only working-age people. This is due to the availability of data from HMRC.
The working population (below state pension age) has increased from 65 for males and 61.5 for females in 2012-2013 to 66 for males and females in 2023/2024. This factor, combined with population growth, contributes to the increase in the total number of income tax payers.
