On the first day of Andy Burnham’s tenure as prime minister, discussions surrounding the tax-free personal allowance took center stage, with Burnham considering an increase to the threshold. While the move was widely viewed as beneficial to most taxpayers, Burnham did not initially rule out raising the additional income tax rate from 45 percent to 50 percent, though he later distanced himself from that policy. This episode highlights a deepening divide in how Britain approaches taxation of low- and high-income earners.

Data from HM Revenue & Customs reveals that the top 10 percent of earners—those making £72,500 or more annually—contribute 58.4 percent of all income tax revenue, up from 50.3 percent in the 1999-2000 tax year. By comparison, the bottom 50 percent of earners now pay just 10 percent of total income tax, a decline from 11.6 percent at the turn of the century. This shift has largely resulted from tax increases targeting high earners, predominantly implemented under Conservative governments, alongside a relatively generous tax-free personal allowance.

Experts note that the UK’s personal allowance, currently set at £12,570, is considerably higher than comparable thresholds in other developed countries. The allowance rose steadily from 1990-91 to 2020-21, increasing by 61 percent in real terms between 2010 and 2020, but has since been frozen, with no planned changes until 2031. In contrast, countries such as Spain, Denmark, and Poland have much lower tax-free allowances, while Germany’s threshold is slightly lower than the UK’s.

The personal allowance disproportionately benefits lower earners, as it represents a larger share of their income. However, those earning above £100,000 begin to lose this allowance gradually, losing £1 for every £2 earned over the threshold until it is eliminated at £125,140. At this point, the highest marginal tax rate of 45 percent applies, leading to an effective income tax rate of 60 percent and approximately 62 percent once national insurance is included. Additional levies such as student loan repayments can further increase this rate.

Some tax analysts argue that low-income workers in the UK face lower tax burdens than their counterparts in other developed nations, leading to increased dependence on higher earners to fund public services. Adam Jefferies, from PKF Littlejohn, pointed out that many higher-middle-class earners, who do not possess large assets or the flexibility of the ultra-wealthy to relocate, often bear substantial tax burdens due to their limited ability to avert taxation.

High earners typically contribute more through various taxes beyond income tax, including stamp duty, capital gains, and inheritance taxes, and many will be affected by the “mansion tax” set to apply from April 2028 to owners of properties valued over £2 million. Nonetheless, the average UK adult is estimated to cost the state around £20,000 annually. Tax contributions from income tax and national insurance alone require earners to reach approximately £73,000 a year before matching that figure, placing those taxpayers in the top 10 percent.

For some top earners, financial pressures persist despite significant salaries. Paulomi Debnath, a hospitality sales professional in London earning above the £72,500 threshold, describes feeling financially stretched despite her growing income. Alongside her husband, who earns a similar amount, she manages mortgage payments on a five-bedroom home and supports a family, noting that certain expenses, such as private schooling, remain out of reach. Debnath’s experience exemplifies the complex financial realities faced by many high earners, who, while contributing a large share of tax revenues, may still feel constrained by living costs and financial commitments.

The evolving landscape of British taxation exposes a widening disparity in how the state levies taxes across income brackets, raising questions about the sustainability and fairness of the current system amid ongoing debate over whether the burden on high earners has reached its limit or if reforms are needed to address lower-income contributions.