Four million to pay top rate tax

THE number of people paying top rate income tax is due to top the four million mark - twice as many as when Labour came to power.

Experts have warned that up to 750,000 more people, including senior nurses, teachers and police officers, will be sucked into the 'high earners' bracket over the next five years.

They will have to pay 40p to the taxman for every pound they earn over the top rate threshold, currently £36,145.

The Conservatives claimed last night the increase in the numbers paying top rate tax could be even higher, reaching 5.6m over the next seven years.

The dramatic increase is certain to intensify claims that higher rate tax has become one of Chancellor Gordon Brown's most lucrative stealth taxes.

When Labour took office in 1997, there were only two million top rate taxpayers.

Although the 40% rate has remained unchanged over the last seven years, Brown has refused to raise the threshold at which people start paying the top rate in line with earnings, which have risen on average by about 35%.

Instead the Treasury has raised the top rate threshold in line with inflation. Since 1997, it has crept up by 20% from around £30,000 to just over £36,000. This means more middle earners have found their salaries catching up with and passing the top rate threshold - a process called 'fiscal drag'.

City accountants Grant Thornton have found that each year between 100,000 to 150,000 people are caught by fiscal drag.

Over the next five years, this means that up to 750,000 more people will be paying income tax at 40% on part of their income.

Grant Thornton's senior tax partner Mike Warburton said: 'A lot more people are going to fall victim to fiscal drag. Both my children are in their twenties and they are both higher rate tax payers - I certainly wasn't when I was their age.'

The Conservatives claimed the increase in the numbers paying top rate tax could be even worse than the Grant Thornton estimate.

Shadow Chancellor Oliver Letwin said the number of higher rate taxpayers had risen by 63% over the last seven years from 2.1m to 3.4m.

If the numbers continue to rise at the same rate over the next seven years, Letwin said the number trapped in the top rate bracket would increase to 5.6m.

The Treasury defended its record and said that tax thresholds had been increased in line with inflation by successive Governments in recent years.