Will Rishi Sunak be brave enough to get rid of the UK’s 60p tax rate?

SIMON LAMBERT: Will the Chancellor be brave enough to get rid of Britain’s 60p tax rate?

It’s high time that Britain got rid of its 60p tax rate, but will the new Chancellor be brave enough?

The top rate of income tax in the UK is officially 45p and for a few years until 2013 it was 50p, which was hugely controversial.

Yet, the real top rate of income tax is higher than both those figures at 60p – and those who pay it are not Britain’s top earners.

This is Rishi Sunak’s best chance at a blank piece of paper Budget, so will he tidy up the murky parts of Britain’s tax code, including the 60p rate for some

This is the effective income tax rate paid by those earning between £100,000 and £125,000, who have their personal allowance removed at a rate of £1 for every £2 earned above that threshold.

That magnifies the underlying tax rate by 50 per cent, meaning that although officially these earners are 40 per cent taxpayers, they effectively pay 60 per cent.

I wrote about this in the run-up to the election, because despite Labour’s plans to overhaul the income tax system – introducing a 45p rate above £80,000 and 50p above £150,000 – it said that it would not axe the removal of the personal allowance.

This would have meant a 67.5 per cent tax rate for those falling into that bracket under Jeremy Corbyn.

Yet, as I commented at the time, at least Labour had the decency to answer This is Money on the matter.

The Conservatives, on the other hand, simply ignored our question three times.

George Osborne chopped the 50p rate of income tax above £150,000 to 45p in April 2013, but left the removal of the personal allowance in place. This had been introduced along with other financial crisis emergency tax measures in 2010 by Alistair Darling.

Forget the attacks on Labour over high tax, Britain is on its fourth Tory Chancellor in a row and our income tax rates go 20 per cent, 40 per cent, 60 per cent, 45 per cent.

Forget attacks on Labour over high tax, Britain is on its fourth Tory Chancellor in a row and our income tax rates go 20%, 40%, 60%, 45%

Will Rishi Sunak be the man who does something about this?

It doesn’t fit in with the levelling up rhetoric, but hopefully he will.

Although attempting to elicit sympathy for those earning £100,000 to £125,000 is a fool’s errand, this is no way to run a tax system – and that’s a problem for everyone not just the people caught out by it.

Taxes that work properly should be simple, fair and ideally progressive. If you find a tax falls short against those fundamental measures, you should fix it.

There is no good argument for charging people a 60 per cent effective rate of tax on the next pound they earn between £100,000 and £125,000, then dropping the marginal rate back down to 40% until they get to £150,000, at which point it rises to 45 per cent.

The only defence appears to be that the people in that bracket are rich, so tax them.

To be clear, however many articles you may read of higher earners pleading poverty due to their high living expenses, anyone on £100,000-a-year plus is rich.

But they aren’t as well off as those on £150,000-a-year plus, so why do we tax them more?

In my column on Labour’s tax plans, I stated that I was ‘attempting the near-impossible: to gather some sympathy for people who earn a lot of money’.

Interestingly though, many readers agreed in the comments that the removal of the personal allowance was not fair and should be removed.

There are many more pressing problems for the Chancellor to tackle in his Budget on 11 March than making things fairer for the wealthy – the NHS, in-work poverty, homelessness, social care and more spring to mind.

Yet, ultimately it is high earners who will pay the bulk of the tax that goes towards helping to solve those problems and we want them to keep paying more as their earnings rise. 

Catching them out with a sneaky 60p tax rate on the way up, wouldn’t seem to be the best way to go about that.

This is Mr Sunak’s best shot at a sheet of blank paper Budget, let’s see what he does.


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