Workers with earnings ranging from £100,000 to £125,140 could face an effective tax rate of 60% if tax thresholds remain unchanged under the Labour government led by Andy Burnham and Chancellor John Healey in the forthcoming Autumn Budget.
John Healey, the Chancellor and MP for Makerfield under Andy Burnham’s leadership, is scheduled to present his fiscal statement on 28 October. Ahead of the announcement, financial firm AJ Bell has called on Mr Healey to pledge a Pensions Tax Lock to maintain existing provisions on tax relief and tax-free cash. This commitment aims to quell uncertainty that might prompt individuals to make hasty decisions about their long-term financial planning.
Financial analyst Sarah Coles emphasises the impact of frozen tax thresholds: “Even without new measures targeting specific groups, frozen thresholds will continue to hit earners hard. With each pay rise, many higher earners edge closer to the £100,000 threshold - crossing which results in substantial tax penalties.
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“Individuals earning between £100,000 and £125,140 effectively lose half their personal allowance for every £2 earned above £100,000, resulting in a combined marginal tax rate of 60%. Once earnings surpass £125,140, the personal allowance is completely withdrawn, and the 45% tax rate applies.
“The situation worsens for families, as crossing this threshold also means losing government childcare support. This includes the loss of tax-free childcare worth up to £2,000 per child annually, all 30 hours of funded term-time childcare for children aged nine months to three years, and half of the 30 hours available for children aged three to four. For a family with two children, this could amount to more than £25,000 in lost support each year.
“Additionally, moving into the tapered annual allowance for pensions could further complicate financial planning for affected individuals.”
The Labour government, under Mr Burnham’s direction, plans to use the budget to decentralise fiscal power, aiming to allocate resources and authority more evenly across the UK. This strategic move aligns with initiatives pursued by the new prime minister to adjust tax and spending policies nationwide.
Mr Healey expressed determination to swiftly restore confidence with the government’s upcoming budget. “This will be a budget that moves money and power out of Westminster and into every postcode around Britain,” he asserted. “It will be built on fiscal discipline, comply with our fiscal rules, and provide businesses and families with much-needed stability to plan for the future.”