Andy Burnham has been warned that increasing the top rate of income tax from 45% to 50% could raise less money than expected if high earners change how and when they receive income. The proposal has not been formally announced, but Burnham has previously argued that there is a case for making the highest earners pay more.
The debate matters to people earning more than £125,140 a year, who currently pay the additional rate of income tax on earnings above that level in England, Wales and Northern Ireland. Scotland operates a separate income tax system for earnings, with different rates and thresholds.
Burnham said in an interview last year that there was “definitely a case” for restoring a 50% top rate. However, recent reporting suggests he has also committed to respecting Labour’s pledge not to increase income tax, National Insurance or VAT, meaning any change would require a clear political decision and explanation.
Tax specialists have cautioned that raising the additional rate may produce limited revenue because it affects a relatively small group of taxpayers.
Robert Salter, a director at accountancy firm Blick Rothenberg, said increasing the additional rate by one percentage point would raise about £230 million. By comparison, he estimated that adding one percentage point to the basic rate would generate about £7 billion because it applies to a much larger number of taxpayers.
“The problem with touching the additional rate is that it brings in very little for the Treasury,” Salter said.
His argument does not mean a higher rate would raise no money. Instead, it highlights the difference between taxing a narrow group of high earners and applying an increase across the broader workforce.
A higher top rate may also change taxpayer behaviour. High earners may bring forward bonuses, delay income, increase pension contributions, move assets or change their tax residence. These responses can reduce the amount collected by the Treasury.
The previous 50% rate was introduced in April 2010 for income above £150,000 and remained in place for three tax years before being reduced to 45% in April 2013. Analysis cited by The Times said the measure raised about £600 million, compared with an initial forecast of £2.7 billion, after allowing for behavioural changes.
However, estimates of the policy’s impact remain uncertain because some taxpayers shifted income between tax years before and after the rate changed. That makes it difficult to separate permanent revenue effects from temporary tax planning.
Stephen Kenny, a tax partner at PKF Littlejohn, said repeated discussion of income tax rises, wealth taxes and possible exit charges had created uncertainty for top earners.
Mike Hodges of accountancy firm Saffery also described the previous 50% rate as an important warning for future chancellors. He said the earlier policy was not an obvious success and should be considered carefully before being repeated.
Supporters of a higher rate may argue that it would make the system more progressive by asking those with the highest incomes to contribute more. Critics, however, say the Treasury must consider whether the change would raise enough money to justify the risk of avoidance, relocation or reduced investment.
There are also alternatives. Reports suggest policymakers could examine additional tax bands, changes to thresholds or a temporary levy linked to a specific spending commitment rather than permanently raising the headline rate.
No 50% income tax rate has been formally introduced, and taxpayers do not need to take action based on political discussion alone. Any change would normally need to be announced by the government, included in a Budget or fiscal statement, approved by Parliament and given a clear start date.
Readers should therefore wait for an official Treasury announcement before making financial decisions. People who could be affected by any future tax change should seek regulated professional advice based on the final rules rather than speculation.