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Millions More In UK Could Soon Pay Top Tax Rate, Warns Think Tank

by Robert Lee, Tax-News.com, London

18 December 2003


More than four million Britons could find themselves paying the top rate of tax by the year 2008 as a result of fiscal drag, according to the Institute of Fiscal Studies.

Since 1996/1997 the number of taxpayers paying the 40% top rate of tax in the United Kingdom (which kicks in on income earned above £30,500) has increased from 2.1 million to 3.3 million as wages rise faster than the inflation-linked increases in the tax brackets. This trend is set to continue, the Institute warns.

"Every government that I can remember has routinely increased things [rates and bands] in line with inflation," Stuart Adam, research economist at the IFS, told the BBC.

Whilst Mr Adam suggested that it is somewhat unfair to label the situation as another of the government’s stealth taxes, he warned that failure by successive governments to address the phenomena could mean that “in 50 years time we could all be higher-rate taxpayers."

The IFS plans to release a more detailed analysis of fiscal drag estimates in the New Year.


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