The stealth raid on middle-class workers has pushed the number of higher-rate taxpayers over five million for the first time.
An extra 680,000 people were dragged into the 40 per cent tax bracket compared with a year earlier, according to official figures.
The landmark comes amid fears that Rachel Reeves will extend an ‘absurd’ earnings threshold freeze in her mini-Budget this month, despite promising no further tax hikes.
Economists said such a move would increase the financial burden for millions, hitting struggling families, and disincentivise hard work.
The latest statistics for 2022/23 are just the ‘tip of the iceberg’, they warned. The total number of higher-rate taxpayers is on track to hit nine million by 2028 and some have speculated that it could reach ten million by the end of the decade.
Income tax brackets were put on ice in 2021 by Rishi Sunak when he was chancellor to help plug the gaps in the country’s finances after the Covid-19 pandemic.
The policy was supposed to run until 2026 but was later extended by Jeremy Hunt to 2028.
Tax thresholds usually move up in line with inflation. When they don’t, more people are pulled into higher bands as their salaries rise in a process known as fiscal drag.
Fears have been raised that Rachel Reeves (pictured) will extend an ‘absurd’ earnings threshold freeze in her mini-Budget this month, despite promising no further tax hikes
The total number of higher rate taxpayers is on track to hit 9million by 2028 and some economists have estimated that it could reach 10million by the end of the decade
In October, the Chancellor vowed to end the freeze, saying an extension would ‘hurt working people’.
But experts said Ms Reeves could be forced to backtrack on March 26, when she is also expected to make huge spending cuts.
This is because the budget watchdog is set to confirm that her £10 billion of fiscal headroom has been wiped out since the Budget.
Darwin Friend, from the TaxPayers’ Alliance, said: ‘The idea of a higher-rate level of tax is increasingly nonsensical, given the number of taxpayers who are being forced to pay it.
‘Frozen thresholds and high levels of inflation mean even many struggling households are now being hit with it.
‘Rachel Reeves needs to urgently increase the 40p threshold to give taxpayers a break and stop this absurd disincentive to hard work.’
An income tax rate of 40 per cent – or 40p for every pound – applies to earnings over £50,271. Figures published by HM Revenue & Customs showed that 5.1million people were paying the higher rate in 2022/23 – up 15 per cent on the previous year.
They made up 15 per cent of all taxpayers and accounted for 35 per cent of the total amount raised from income tax during the year.
An income tax rate of 40 per cent – or 40p in for every pound – applies to earnings over £50,271 (file image)
Economist Julian Jessop said: ‘The jump in the number of higher-rate taxpayers is just the tip of the iceberg.
‘The continued freeze on personal tax allowances could drag another four million people into the net by 2028. Moreover, there is already speculation that Rachel Reeves will extend the freeze for another two years in an emergency budget later this month.
‘This could take the total number of higher-rate taxpayers to ten million.’
Tom Clougherty, executive director at the Institute for Economic Affairs, said: ‘Since 1990, the percentage of the adult population that pays the higher or additional rate of income tax has tripled.
‘More workers paying higher rates of tax is a problem for the economy because it reduces the incentive for people to increase their earnings – or indeed to build up their future earning potential. The result is less dynamism and less growth.
Experts said the Chancellor could be forced to backtrack on March 26, when she is also expected to make huge spending cuts
‘The Government faces a very difficult fiscal situation at the moment but there needs to be a long-term plan that would get us back to lower, flatter, simpler taxes.’
The HMRC figures also showed the number of people paying the additional tax rate of 45 per cent on earnings above £125,140 hit 600,000 in 2022/23 – a 9.5 per cent rise.
And a freeze in the personal allowance threshold – which means income up to £12,570 is not taxed at all – resulted in 1.5 million more people paying income tax.
