Britain's 60% tax trap fuels growth debate as threshold remains frozen

Britain's 60% tax trap has grown more visible as the threshold at which the personal allowance tapers has remained frozen at £100,000 since 2010. HMRC figures released to NFU Mutual show that in the 2024-25 tax year, 591,000 people lost some of their personal allowance and 885,000 lost it all, a total of about 1.48 million affected at some point by the taper.

Under current law, the top rate is officially 45%, but between £100,000 and £125,140 the taper reduces the personal allowance by 1 for every £2 of income, lifting the marginal rate to 60% on the next pound earned. At £125,140 the taxpayer loses the entire £12,570 personal allowance, and the marginal rate reverts to 45% on higher bands, while the effect of the taper continues to blunt income in the £125,140-plus range. The tax bands then run 20%, 40%, 60%, and 45% in that order. The result is an unusual staircase in the tax system where the highest earners face a steeper effective tax bite on portions of their income.

This rate trap has become more than a mathematical curiosity as the threshold has not kept pace with inflation. If the £100,000 threshold had risen with CPI inflation since its 2010 introduction, it would be about £181,000 today, This Is Money's inflation calculator shows. The consequence is a widening cohort of earners who encounter punitive marginal rates for additional income, which in turn can blunt career progression and long-term earnings potential.

Beyond the math, the trap is blamed for dampening work incentives: people trimming hours, turning down extra work, or adjusting pension contributions and salary sacrifice schemes to stay under the threshold. Childcare support can also be cut when one partner earns more than £100,000, creating a potential astronomical marginal tax rate for families in which both partners contribute to earnings and care needs.

Labour’s stance on immediate reform has been a point of debate in recent economic commentary. The column notes that opposition leader Rachel Reeves had an opportunity to address what many see as a Kremlin of tax cliffs, but has not moved to sweep away the trap or enact broader reform at this stage. Critics argue that delaying action costs the economy by curbing work effort and reducing mobility for high-skilled workers in growth sectors.

A reader-driven debate has proliferated in coverage of the trap, with This Is Money presenting four practical ideas and the columnist’s verdicts on each as potential starting points for policy discussion. First, abolish the personal allowance taper so everyone keeps their £12,570 of tax-free income. The verdict here is that removing the taper entirely would be the best option and, if paired with lowering the 45p threshold to start at £100,000, would be fairer than the present arrangement. Second, widen the taper band—stretching it from £100,000 to £150,000 or more—to reduce the marginal rate nearer to 45% would soften the blow, though some bad-tax elements would remain; the columnist argues this is still inferior to scrapping the taper. Third, introduce a high-earner surcharge as a clear, additional tax band for top earners. While more honest, the proposal could backfire politically, given the heavy tax burden high earners already bear. Fourth, pursue broader simplification of the tax system—use the trap as a launchpad for a root-and-branch reform, smoothing band transitions and removing cliffs that trip up even financially literate taxpayers. The verdict: eliminating the 60% trap and delivering broader reform would address the core structural issues and reset Britain’s approach to fairness and simplicity in taxation.

Economists warn that a growing reliance on tax receipts from the top 10%—who earn £71,600 or more and contribute about 59% of income tax revenue—heightens the stakes for any reform. As growth depends more on attracting and retaining skilled workers, the 60% trap is increasingly seen as anti-growth. The debate now centers on whether a narrowing or removal of the taper could be achieved without unacceptable fiscal consequences and how such a reform would be communicated politically.

Readers are invited to share ideas in comments and in future coverage the editors will highlight proposals with the strongest practical and political support. While the precise fiscal cost of abolishing the taper or implementing a surcharge would depend on the broader design of the tax system, proponents argue that removing a mechanism that suppresses incentives for high earners could yield higher productive activity and tax receipts in the long run. The conversation is clearly shifting from simply lamenting the trap to outlining concrete policy options aimed at aligning tax structure with growth and fairness goals.

As the policy debate unfolds, economists and policymakers will watch closely how any reform interacts with spending plans, welfare programs, and the broader commitment to a more competitive economy. The challenge is to restore growth incentives without sacrificing revenue stability, all while simplifying a tax code long criticized for its complexity. The calls for action reflect a larger sentiment: that after years of incremental tinkering, Britain needs a coherent, growth-oriented tax framework that is fair in both principle and practice.