‘Fiscal drag’ – political parties dressing up tax

In just three years the number of people who pay tax at the higher rate (40%) has risen by around 1 million. Many of these people won’t even notice until the end of the tax year that they are paying a higher rate tax, a situation that has come about because tax bands have not moved up in line with inflation – the phenomena known as ‘fiscal drag’. Inflation-linked pay rises have very quietly moved a large number of people into the higher rate tax bands.

There are now 4.1 million people who will pay high rate tax in a total of 29.7 million tax payers. Back in the late 1980s only a relatively small number of genuinely wealthy people would expect to pay tax at the top rate but it is now a significantly large proportion of the total.

Politicians and the media seem to have focused purely on the decision to ditch the 50p top rate, but the fact that one million people have been dragged into the top tax band (and in such a short space of time!) has passed completely under the radar. 14% of taxpayers will now be paying the 40% tax rate – yet another cruel blow to the embattled ‘squeezed middle’. And how long before this 14% becomes 20% or even 30%? Don’t expect to hear even a whisper out of ANY of the main political parties over this one…


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