Andy Burnham, the Labour Party frontrunner for Prime Minister, has reignited discussions about increasing the top income tax rate to 50% for those earning above £125,140. This proposal revives a controversial debate about higher taxation on top earners in the UK.
The current “Additional rate” of income tax, set at 45%, applies to taxable income exceeding £125,140 in England, Wales, and Northern Ireland. Burnham recently mentioned in an interview with The Telegraph that there is a “definite case” for raising this rate.
However, experts caution that raising the tax rate may have limited benefits for the Treasury. Robert Salter, director at Blick Rothenberg, points out that increasing the additional rate by 1p would only generate about £230 million, whereas the same increase in the basic rate could bring in around £7 billion.
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This aligns with previous experiences. When Ed Miliband proposed a 50% rate during the 2015 election campaign, it faced significant criticism and was ultimately abandoned. Mike Hodges from Saffery notes that the last time the UK had a 50% top rate—from April 2010 to April 2013—it failed to deliver substantial revenue and should act as a cautionary tale.
Stephen Kenny, a tax specialist at PKF Littlejohn, highlights the frustration among top earners who are weary of ongoing speculation about tax hikes, wealth taxes, and exit taxes. Nimesh Shah from Blick Rothenberg adds that implementing such changes mid-year would introduce complexity, making it impractical.
Despite these challenges, some experts suggest that in exceptional circumstances, a 50% rate could be presented to the public as a necessary measure. Still, there is widespread agreement on the need for a stable government that commits to clear, consistent tax policies without frequent reversals.
As Burnham weighs his options, the debate remains focused on balancing the desire for increased revenue with concerns about economic behavior, tax avoidance, and administrative feasibility.