The figures reveal changes in the distribution of tax revenue over the last decade, with a growing share now coming from higher earners.
The pie chart shows the proportion of 2018/19 tax expected to be paid by taxpayers in various bands of income. For example, the smallest wedge shows that the bottom 50% of income tax payers (those with annual income of up to £25,500) will provide 9.5% of all income tax receipts.
At the opposite end of the scale, the largest wedge is the top 1% (with incomes of at least £177,000) who will supply 27.9% of the £185 billion of income tax the Treasury hopes to receive for the current tax year. In other words, over a quarter of income tax comes from ‘the 1%’.
The Exchequer’s dependence on a small group of wealthy taxpayers is nothing new. However, the concentration has grown since the start of the decade. For example, in 2010/11 – when additional rate tax first appeared at the 50% rate – the contribution from the top 1% was 25.0%. For the top 10% of taxpayers (with income of at least £57,500 in 2018/19), the tax share has risen from 53.5% in 2010/11 to 59.7% this tax year. Over the same period the bottom 50% have seen their share drop from 11.3% to 9.5%.
There are many reasons for the squeeze on high income groups. For example, the political imperative of above-inflation rises in the personal allowance has kept taxpayer numbers flat, which means more revenue must be extracted from a static taxpaying population suffering low earnings growth. Keeping a tight rein on the higher rate threshold and freezing the additional rate threshold at £150,000 have both added to the concentration on higher earners.
With the Chancellor dependent on high income taxpayers, he cannot afford to cut their taxes – hence the freezing of both the additional rate threshold and the £100,000 starting point for the taper of the personal allowance.
If you want to reduce your tax bill, the answer is not to wait for the next Budget – when taxes may rise to pay for the NHS funding boost – but to check with your financial adviser that you are making the most of the current tax rules.