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What the 45p income tax rate U-turn means for you

Kwasi kwarteng
Kwasi kwarteng

Higher earners will lose thousands of pounds in tax savings after the Chancellor abandoned plans to abolish the top rate of income tax next year.

Kwasi Kwarteng confirmed the Government would not abolish the 45p rate of income tax for anyone earning over £150,000 in a statement this morning.

The policy was originally announced less than two weeks ago in the mini-Budget, alongside proposals to introduce a 1p cut to the basic rate of income tax in April.

But the planned tax cut for the country’s highest earners was met with criticism from some quarters, including from a number of senior Conservatives.

The U-turn means the higher rate of tax will remain at 40pc on earnings between £50,271 to £150,000, while any income above this threshold will continue to be taxed at 45pc.

How much more will I pay?

It means someone earning £200,000 will be £2,500 a year worse off now the top rate will remain in place, while someone on £180,000 will miss out on £1,500 in tax savings.

Both will still benefit from the basic rate of tax dropping from 20p to 19p next year and the reversal of the 1.25 percentage point rise in National Insurance.

These two policies combined will save someone earning £200,000 more than £1,800 a year, compared to the current tax year, according to analysis by tax firm Blick Rothenberg.

Nimesh Shah, of the company, said the U-turn was “astonishing”, but more tax cuts could be on the cards for the Autumn Budget in November.

“They will need to tread very carefully given the social and political backlash, but I expect the Government will be looking at measures like abolishing the tapering of the personal allowance for an income exceeding £100,000 and increasing the current £50,000 threshold for the high income child benefit charge.

"They could end up costing far more than the initial plan to abolish the top rate of income tax, but would certainly appear more popular."