London and the South-East pays 45% of total income tax in the UK

Press release featured in This is Money, MoneyWeek, Pam Insight

London and the South-East contribute 45% of the UK’s total income tax bill of £240.7 billion*.

Our analysis shows that over the past ten years, London’s income tax contributions have jumped 80.7% from £35.3bn to £63.8bn. This compares with 48.4% increase for the rest of the UK. The capital on its own accounts for a quarter of all income tax paid (26.5%)

London and the South-East consistently contribute a larger share of income tax than other parts of the country as the area is home to a disproportionate number of high earners paying tax at the 45% rate.

Increasing numbers of taxpayers in the capital and the South-East have seen their tax bills rise as the threshold for the 45% additional-rate tax was lowered from £150,000 to £125,140 in April 2023. This brought hundreds of thousands more taxpayers into the top tax band.

At the same time, personal allowances and higher-rate thresholds have been frozen for years, dragging more and more people into higher tax bands as incomes increase, a process known as fiscal drag.

According to our research, all top 20 areas in the UK for the highest tax per capita, are in London or the South-East.

Wandsworth pays more than Leeds and Birmingham

Our research found that residents of London borough Wandsworth paid £4.26 billion in income tax, more than Leeds and Birmingham combined at £4.23 billion. Another London borough, Hackney contributed £1.54 billion in income tax, whereas the entire City of Glasgow paid £1.35 billion.

The South-East has consistently contributed the lion’s share of income tax over the past ten years. Neela Chuahan, partner in our London office, said: 

“London and the South-East now account for almost half of the UK’s entire income tax take. Obviously, that reflects the sheer concentration of high earners in the South-East but it also reflects years of tax policy geared towards shifting more of the tax burden onto higher earners.”

Neela adds: “Freezing allowances and lowering the additional-rate threshold has pulled ever more taxpayers into higher bands, driving a sharp rise in revenues from London in particular – up more than 80% over the past decade.”

She concludes: “While this underlines how dependent the Exchequer has become on London and the South-East, it also raises concerns about the long-term competitiveness of the UK tax system and the risk that persistently higher tax burdens could push some high earners to relocate abroad or reduce their economic activity.”

“Anecdotal evidence suggests that this is happening and that the shift of taxes onto the higher earners has got to the point that it is detrimental for the UK economy.”

*For most recent tax year 2022-2023 that local breakdown of income tax payments available.

The share of UK income taxes paid by London and the South East over the past five years