IFS warns one in five taxpayers will pay higher tax rate

One in five taxpayers will pay the higher or additional rate of income tax by 2027, warns the Institute for Fiscal Studies (IFS).

Recent threshold freezes could see around 7.8 million people pay income tax at 40% or above – nearly four times higher than during the 1990s.

Furthermore, real household disposable income will be 1.4% lower by 2027/28 than would have been the case if thresholds increased in line with inflation.

According to the IFS, the six-year threshold freeze is set to become the biggest tax-raising measure since 1979.

While no nurses and only one in 16 teachers were higher-rate taxpayers in the 1990s, this is set to increase to one in eight nurses and a quarter of teachers in the next few years.

Isaac Delestre, research economist at the IFS, said: “For income tax, the story of the last 30 years has been one of higher rate tax going from being something reserved for only the very richest, to something that a much larger proportion of adults can expect to encounter.

“The freeze to thresholds is supercharging that process, pulling an additional 2.5 million people into paying rates of 40% or more by 2027-28.”