Britain can’t afford the £100k cliff edge

High marginal rates are penalising work rather than rewarding it

Today on Arguably, I explain why the UK’s £100,000 tax trap is something that progressives should care about. This piece is paid but you can read it now by signing up for a seven-day free trial.

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Back in 2009, as the shockwaves from the financial crisis reverberated, Britain created a notably more progressive tax system. Much of the political and media attention focused on the new 50p tax rate on earnings over £150,000 but it was accompanied by a less-noticed act of redistribution. In one of the stealth taxes for which New Labour had become famed, the personal allowance was reduced by £1 for every £2 earned between £100,000 and £112,950 (now £125,140), creating an effective marginal rate of 60p, or 62p once you include National Insurance.

Ever since, even as earnings have risen – nearly two million workers, or 6 per cent, now earn over £100,000 – this policy has endured. George Osborne, a man who once flirted with eastern European-style flat taxes, maintained a tax rate that would make Nordic finance ministers blush.

Why, you might ask, should progressives worry about that? Real wages have risen by just 2 per cent since 2008 – the median full-time salary is currently £39,039 – and high earners risk appearing an eccentric political priority. But the policy problems with the 62p rate – or 71p for those with a student loan and 77p for postgraduates – have now become unignorable.