Wage growth raises taxes

Wage growth nudges more into higher tax bandsWhile many people will see tax cuts when allowances rise at the start of the new financial year on April 6, wage growth means around 200,000 more people will enter the higher 40% band. On top of this, 7,000 people have joined the 45% band, while 300,000 more people than before will be basic-rate payers. Sam Brodbeck in the Telegraph reflects on the number of people paying higher rates of tax, with Office for National Statistics figures showing that there were 31.6m income tax payers in the 2018/19 tax year, with these handing over a collective £187bn in tax, up from 31.2m and £181bn the year before. The increase comes despite the personal allowance rising from £11,500 in 2017/18 to £12,500 in 2019/20. The amount on which people pay no income tax rises to £12,570 next week, he notes. Mr Brodbeck also considers the effects of “fiscal drag”, where wage inflation outstrips changes in the bands. With a number of economists and investors saying inflation could be on the cards, wages may climb. In this scenario, Sarah Coles of investment firm Hargreaves Lansdown suggests the number of people paying higher rates of tax “will rocket.”