UK ‘swings’ from scrapping 45p tax to lowering of top rate threshold

Chancellor Jeremy Hunt had bad news on Thursday for those on the highest incomes as he announced a reduction to the threshold for paying the top rate of tax from £150,000 to £125,140.

While not a surprise, it marked a sharp about-turn from only a few weeks ago when then-chancellor Kwasi Kwarteng stood up in the House of Commons and announced plans to scrap the top rate of tax as part of a radical bid to boost growth.

The move was widely criticised and Liz Truss’s administration, before it fell apart, was eventually forced into an embarrassing u-turn over the outcry.

The move sees the threshold for the 45p additional rate of tax will be cut from £150,000 to £125,140, as part of a wider package of “difficult” tax rises and spending cuts.

Economists and analysts on Thursday were quick to point out the dramatic shift in economic thinking over the course of only a few weeks, as the Institute for Fiscal Studies (IFS) said the change to the 45p additional rate threshold would increase the number of top-rate taxpayers by around 350,000, bringing the total to around one million.

“The swing over a couple of months from Kwasi Kwarteng’s fiscal loosening to a big fiscal tightening is a belated recognition of some harsh fiscal realities,” IFS director Paul Johnson said.

Torsten Bell, chief executive of the Resolution Foundation, said: “The UK Government has gone from announcing the biggest tax cuts in 50 years to the biggest tightening since 2010 in just a few weeks. Today provided the more reality-based version.”