Have you ever heard of fiscal drag? Whether you have or haven’t, it’s my reason for asking: will you be paying higher-rate tax by 2027?
With tax thresholds remaining frozen since the Tories froze them in April 2022, a significant increase in higher-rate taxpayers is anticipated by 2027.
According to the Institute for Fiscal Studies (IFS), by the 2027–28 tax year, approximately 7.8 million individuals are projected to be paying income tax at rates of 40 per cent or higher.
This figure represents about 20 per cent of taxpayers – one-fifth – and 14 per cent of the adult population, indicating a substantial rise from previous decades.
Buy Cruel Britannia in print here. Buy the Cruel Britannia ebook here. Or just click on the image!
As incomes grow due to inflation and other factors, more individuals are pushed into higher tax brackets—a phenomenon known as “fiscal drag.”
The IFS notes that this freeze could become the most significant tax-raising measure since the VAT increase in 1979.
The impact varies across professions. For example, by 2027–28, it’s estimated that over one in eight nurses, one in six machinists and fitters, one in five electricians, and one in four teachers will be subject to higher-rate tax.
This marks a notable change from the early 1990s, when higher-rate tax was predominantly paid by the highest earners.
The sticking-point is that the pay rises that drag people into the higher tax bracket will be made in order to keep those people ahead of inflation – to ensure they can afford the necessities of life.
But of course they won’t be able to afford those necessities if they’re being forced to pay more in taxes to the government.
And this in turn means fewer people will have enough money to live on.
Labour Party? Under Keir Starmer and Rachel Reeves, this lot ought to be called the Poverty Party!
Not only that – it will ruin the tax system.
Taxation can serve very useful purposes, if applied with a measure of balance.
A progressive tax system, where higher earners pay more, helps reduce income inequality and funds essential public services like healthcare, education, and infrastructure.
The argument is that redistributing wealth increases overall economic stability by ensuring lower-income individuals have more purchasing power, which in turn supports businesses and the broader economy.
When the wealthy are taxed more, that money can be used for social programs, helping those who might otherwise struggle.
Many conservatives argue that lower taxes all around mean there is more money to spend in the economy, allowing entrepreneurship – new businesses – and growth.
The current situation is therefore bad for everybody.
It stifles entrepreneurship because the people who are most likely to want to start businesses are being taxed out of the ability to do so.
It strangles growth by ensuring that the people who would normally pump money into the economy no longer have the ability to do so.
And it kills the principle of progressive redistribution because the people who would normally benefit from it are now those paying more tax; even if they do receive money, it will not compensate them for what they are losing.
It seems a lot of pain just for Rachel Reeves to balance the books – a feat she is not going to be able to accomplish in any event. What would you do?
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Cruel Britannia is available
in either print or eBook format here:
The Livingstone Presumption is available
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Health Warning: Government! is now available
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The first collection, Strong Words and Hard Times,
is still available in either print or eBook format here:
Will you be paying higher-rate tax by 2027?
Have you ever heard of fiscal drag? Whether you have or haven’t, it’s my reason for asking: will you be paying higher-rate tax by 2027?
With tax thresholds remaining frozen since the Tories froze them in April 2022, a significant increase in higher-rate taxpayers is anticipated by 2027.
According to the Institute for Fiscal Studies (IFS), by the 2027–28 tax year, approximately 7.8 million individuals are projected to be paying income tax at rates of 40 per cent or higher.
This figure represents about 20 per cent of taxpayers – one-fifth – and 14 per cent of the adult population, indicating a substantial rise from previous decades.
Buy Cruel Britannia in print here. Buy the Cruel Britannia ebook here. Or just click on the image!
As incomes grow due to inflation and other factors, more individuals are pushed into higher tax brackets—a phenomenon known as “fiscal drag.”
The IFS notes that this freeze could become the most significant tax-raising measure since the VAT increase in 1979.
The impact varies across professions. For example, by 2027–28, it’s estimated that over one in eight nurses, one in six machinists and fitters, one in five electricians, and one in four teachers will be subject to higher-rate tax.
This marks a notable change from the early 1990s, when higher-rate tax was predominantly paid by the highest earners.
The sticking-point is that the pay rises that drag people into the higher tax bracket will be made in order to keep those people ahead of inflation – to ensure they can afford the necessities of life.
But of course they won’t be able to afford those necessities if they’re being forced to pay more in taxes to the government.
And this in turn means fewer people will have enough money to live on.
Labour Party? Under Keir Starmer and Rachel Reeves, this lot ought to be called the Poverty Party!
Not only that – it will ruin the tax system.
Taxation can serve very useful purposes, if applied with a measure of balance.
A progressive tax system, where higher earners pay more, helps reduce income inequality and funds essential public services like healthcare, education, and infrastructure.
The argument is that redistributing wealth increases overall economic stability by ensuring lower-income individuals have more purchasing power, which in turn supports businesses and the broader economy.
When the wealthy are taxed more, that money can be used for social programs, helping those who might otherwise struggle.
Many conservatives argue that lower taxes all around mean there is more money to spend in the economy, allowing entrepreneurship – new businesses – and growth.
The current situation is therefore bad for everybody.
It stifles entrepreneurship because the people who are most likely to want to start businesses are being taxed out of the ability to do so.
It strangles growth by ensuring that the people who would normally pump money into the economy no longer have the ability to do so.
And it kills the principle of progressive redistribution because the people who would normally benefit from it are now those paying more tax; even if they do receive money, it will not compensate them for what they are losing.
It seems a lot of pain just for Rachel Reeves to balance the books – a feat she is not going to be able to accomplish in any event. What would you do?
Vox Political needs your help!
If you want to support this site
(but don’t want to give your money to advertisers)
you can make a one-off donation here:
Be among the first to know what’s going on! Here are the ways to manage it:
1) Register with us by clicking on ‘Subscribe’ (bottom right of the home page). You can then receive notifications of every new article that is posted here.
2) Follow VP on Twitter @VoxPolitical
3) Like the Facebook page at https://www.facebook.com/VoxPolitical/
Join the Vox Political Facebook page.
4) You could even make Vox Political your homepage at http://voxpoliticalonline.com
5) Follow Vox Political writer Mike Sivier on BlueSky
6) Join the MeWe page at https://mewe.com/p-front/voxpolitical
7) Feel free to comment!
And do share with your family and friends – so they don’t miss out!
If you have appreciated this article, don’t forget to share it using the buttons at the bottom of this page. Politics is about everybody – so let’s try to get everybody involved!
Buy Vox Political books so we can continue
fighting for the facts.
Cruel Britannia is available
in either print or eBook format here:
The Livingstone Presumption is available
in either print or eBook format here:
Health Warning: Government! is now available
in either print or eBook format here:
The first collection, Strong Words and Hard Times,
is still available in either print or eBook format here:
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