New figures show South East pays HALF of UK’s £173bn tax…and to face Chancellor’s stealth rises

Middle England pays almost half of the UK’s £173 billion tax take and will be hit hard by impending ‘stealth’ tax rises, figures reveal.

HMRC statistics show that families in London and the South East are paying a combined £87 billion bill – more than the rest of England put together. 

And nearly a million more taxpayers in the region are set to be forced into higher rates by 2027/28, according to a breakdown of the figures carried out by the Liberal Democrats.

Chancellor Jeremy Hunt froze tax thresholds in the Budget last month – which is expected to net the Government an extra £120 billion over the next five years.

But it also means that, even though wages are not rising enough to keep pace with the cost of living, many employees will be pulled into higher bands.

In five years, 3.2 million people previously not liable for income tax will have to pay it, and nearly 2.5 million will move into higher brackets.

Meanwhile, the tax burden is on course to hit 37.7 per cent of GDP, the highest level since the Second World War, according to Treasury watchdog the Office for Budget Responsibility (OBR).

The Lib Dem analysis shows that 20 of the 25 parliamentary constituencies paying the most income tax are in the capital, with commuter-belt seats such as Esher and Walton and Hitchin and Harpenden also among the highest contributors.

In 2020/21, people in Kensington paid £3.5 billion in income taxes, compared to £4.5 billion in the entire North East. Those in Jeremy Hunt’s South West Surrey constituency paid £837 million – more than the ten most deprived constituencies in the country combined.

The numbers come at a time when it’s estimated that almost one million people in London and the South East will be pushed into the higher band of income tax by 2027/28 due to the stealth tax.

Indeed, according to the Lib Dem breakdown, freezing the tax bands will lead to an increase of more than £4.4 billion being paid by London and the South East over the next year alone.

The stealth raid is helping Mr Hunt to balance the books – but only by what the OBR calls a ‘wafer-thin’ margin.

Under the ‘personal allowance’, anyone earning less than £12,570 does not have to pay any income tax. 

But the freeze means that if their wages climb above this – even though inflation is eating into the value of those wages – these people will become liable at a rate of 20 per cent. That will affect 3.2 million over the next five years, creating nine per cent more taxpayers, the OBR has warned.

The 20 per cent rate applies on earnings of up to £50,270. Above that, the rate is 40 per cent: a threshold which has also been frozen. As a result, 2.1 million extra taxpayers will be pulled into this bracket by 2028.

A third ‘additional’ rate of 45 per cent applies on incomes of more than £125,000. The number of those liable to this will rise by 350,000, or 47 per cent.

OBR analysis shows the freezes will add £12 billion to the tax take over the 2023/24 financial year, rising to £29.3 billion by 2027/28. All in all, it adds up to an extra £120.4 billion for the Treasury.

Budget forecasts also show that borrowing for the current 2022/23 financial year will come in at £152.4 billion – £24.7 million less than was predicted in November.

Liberal Democrat leader Ed Davey said: ‘This is a hammer blow for Middle England.

‘Hard-working families are already struggling with rising food and energy bills. More tax hikes are the last thing they need. When will the pain end?

‘Every month, families are looking at their pay packet and feeling short-changed, with yet more of their wages eaten up by endless tax hikes. It is a toxic cocktail of taxes, mortgages and food bills.

‘The hard-working middle are already facing the highest tax burden in 70 years. Yet Jeremy Hunt is set to compound their misery.’