16 June 2009
The number of higher rate taxpayers is forecast to plummet by a record 24% by 2010, a full five times bigger than during the 1990/91 recession when the number of higher rate taxpayers fell by just 4.7%, resulting in tax from higher rate taxpayers dropping by an estimated £15 billion.
According to figures obtained by us from HM Revenue & Customs, the number of higher rate taxpayers will have slumped from 3.9 million last year when the recession began to 2.9 million next year, a decline of one million (24%). In the early 90s recession the number of higher rate taxpayers declined from 1.7 million to 1.6 million.
Our experts say that the steep fall in the number of higher rate taxpayers is due to a combination of redundancies, reduced bonuses and investment losses forcing large numbers of higher rate taxpayers down into the basic rate tax band. The number of basic rate taxpayers is predicted to increase by 8.1% this year, from 23.4 million to 25.3 million.
Previously the number of higher rate taxpayers had increased 86% from 2.1 million to a maximum of 3.9 million since Labour came to power in 1997.
Roy Maugham, Tax Partner in our London office, comments: “For the Government to be forecasting a 24% decline in higher rate taxpayers but an 8% increase in the number of basic rate taxpayers shows just how this recession is having a disproportionate impact on those on relatively higher incomes.”
“There has been a huge increase in the number of taxpayers taxed at the higher rate over the last ten years, so this is a sudden and dramatic reversal of that trend entirely without precedent.”
“Many taxpayers pay tax at higher rate by virtue of bonuses they receive on top of their basic salaries, so when bonuses are severely cut that can push them down into the basic rate tax band.”
“A large number of companies are not paying bonuses at the moment, but what these figures prove is that it’s ordinary employees on fairly modest incomes, not necessarily millionaire bankers, that are really seeing their incomes squeezed by the credit crunch.”
He adds: “Higher rate taxpayers make a very significant contribution to the Treasury, so this really blows a hole in the Government’s finances. These figures raise serious questions about how much the Government will bring in from the 50% tax rate in 2010/11.”
The Government will take £16 billion less in tax from higher rate taxpayers in 2010/11, down from £91 billion in 2007/08.
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