Higher Earners in Britain Are Being Hit by Stealth Tax Increases

(Bloomberg) -- British workers on higher incomes are the victims of damaging “stealth” tax increases, according to the Institute for Fiscal Studies.

In an analysis published Friday, the think tank said decisions to freeze thresholds rather than raise them in line with inflation mean that increasing numbers of people are being drawn into higher tax bands, reducing incentives to work.

When the top income-tax threshold of 150,000 pounds ($197,000) was announced in 2008, there were 319,000 taxpayers with incomes above that level; now there are 428,000, the IFS said. In the public sector, pay rises can leave some people worse off because of the increased tax bill they trigger.

“Some might struggle to shed a tear for the plight of high earners with good pensions. But nobody’s interests are served by encouraging them to work less in order to keep their income below an arbitrary threshold,” said Stuart Adam, a senior research economist at the IFS. “As these thresholds are frozen while incomes rise, these pernicious incentives become relevant to an ever wider group of people.”

The IFS said there are numerous examples of recent governments acting “stealthily” to generate revenue. Almost 1 million people are now paying a marginal tax rate of 60 percent as a result of a policy that stops high earners benefiting from tax-free pay, the IFS said. The threshold, which has remained at 100,000 pounds for a decade, would be 120,000 pounds had it risen in line with prices.

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To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, David Goodman, Lucy Meakin

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