UK Treasury Set To Benefit From Bracket Creep

by Jason Gorringe, Tax-News.com, London

25 March 2004

Although Chancellor of the Exchequer Gordon Brown left income tax rates on hold in last week’s budget, many thousands of taxpayers will still be left paying more tax due to bracket creep, where earnings rise faster than the inflation-linked increases in tax brackets.

Because the Chancellor has only increased income tax thresholds in line with inflation (which stood at 2.8%), rather than earnings (which have risen 4.4%), some 150,000 people can expect to be dragged into the higher rate tax band this year, bringing the total number of taxpayers paying the top rate of 40% to 3.5 million. This is 1.5 million more than when the Labour government came to power in 1997.

A similar effect has occurred with inheritance tax, where the Treasury has benefited significantly from the boom in house prices in recent years. In the 1996/97 tax year, £1.6 billion was collected from IHT revenues. By 2004/05 this had almost doubled to £2.8 billion.

It has also been reported that the rise in house prices boosted the government’s income from stamp duties, which has almost quadrupled from £2.4 billion in 1996/97 to £9.4 billion for 2004/05.

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