Under the leadership of Labour Party Prime Minister Andy Burnham, a significant shift in the UK’s tax landscape is on the horizon. HM Revenue & Customs (HMRC) data reveals that by 2027, approximately 3.2 million additional taxpayers will be pushed into the higher-rate income tax bracket. This surge is primarily due to the continuation of frozen tax thresholds, which have not adjusted in line with inflation or income growth.
Marianna Hunt, a Personal Finance Expert at Fidelity International, explains, “The number of higher-rate taxpayers has soared from around 4.43 million in 2021/22 to an expected 7.7 million in 2026/27, a 74% increase in just five years.” She emphasizes that this rise isn’t necessarily because more people have become wealthy, but due to a combination of income growth, population increases, and notably, fiscal drag—where stagnant tax thresholds pull more earners into higher tax bands.
Mr. Burnham has acknowledged the pressure on taxpayers, noting that the frozen personal allowance—the threshold before income tax applies—has been a frequent concern among constituents. Since April 2021, this allowance has remained at £12,570, contributing to more individuals crossing into higher tax rates despite steady incomes.
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Hunt highlights that the growing rank of higher-rate taxpayers no longer consists solely of top earners. “Millions of workers with what feels like normal salaries are now subject to tax rates historically reserved for much higher incomes.” She advises taxpayers to explore tax-efficient strategies such as boosting pension contributions, which reduce taxable income while supporting retirement savings. Additionally, making full use of ISA allowances can protect investment growth and income from tax.
As broader segments of the workforce face higher tax burdens, Hunt stresses the importance of regular financial reviews. “Tax planning is becoming crucial not just for the wealthiest but for many middle-income earners as well.”