Marginal Tax Rates: Economic Growth
The question
To ask the Chancellor of the Exchequer, pursuant to the Answer of 20 December 2024 to Question 19379 on Marginal Tax Rates, for what reason there are lower marginal rates of taxation for higher earners than in some lower earning brackets; and what assessment she has made on the potential impact of marginal tax rates on economic growth.
Answered by James Murray
The Government is committed to a fair tax system in which those who have more contribute more. The income tax system is highly progressive, with different rates of tax sitting above an internationally high Personal Allowance.
Within the personal tax system, withdrawal of the Personal Allowance affects those with income over £100,000 a year. It was introduced in 2010-11 and occurs gradually, with £1 of allowance lost for every £2 of income above the income limit of £100,000, implying an effective marginal income tax rate of 60 per cent. This reduction continues until the Personal Allowance is completely withdrawn for those with incomes above £125,140.
The Government recognises that because of this, taxpayers with incomes within the taper band face a higher a marginal tax rate and that it introduces some complexity into the tax system. However, removing this would be expensive and regressive.
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