After a prolonged and painful Autumn of yo-yo policy we arrive here. More tax for those who already pay the most.

Last week the chancellor announced a lowering of the additional rate tax threshold from £150,000 to £125,140 from 2023/24. Meaning those earning over £150,000 will now be paying an additional £103.58 a month of income tax. You may think ‘well they’re earning £150,000 a year they can afford it’. Maybe that’s the case, but let’s look at what it means for ambition.

Current salary Tax rate of 6.0%* pay increase from 2023/24 Monthly pay in the pocket increase** Average monthly increase in cost of living*** Out of pocket each month by
£50,000 41.1% £147 £281 £134
£75,000 42.0% £218 £389 £171
£100,000 62.0% £190 £496 £306
£125,000 47.3% £330 £566 £237

*Average weekly earnings increase June – August 2022 (annual: source ONS AWE)

**Net salary increase assuming no pension contributions or student loan payable

***Assuming the 50/30/20 rule where most people spend 80% of their salary, increased by 11.1% the value for CPI in October 2022

All working people receiving the average pay increase are out of pocket each month, and not by a small margin. I’ve spoken to successful professionals who are now cutting down their hours. What’s that going to do for economic growth and productivity?

Working people have been subject to average inflation adjusted pay of -5.1% (based on October 2022 CPI) in the past year. People in receipt of the state pension (aged 66+) will receive an inflation linked increase to their income from April 2023.

The inequalities in policy have been clear for some time and is not only prevalent in income and state benefits (don’t get me started on property prices!). The statement ‘it’s not responsible to leave debt for the next generation’ doesn’t quite cut it when the generation that came into the workforce during the financial crisis of 2007-2008 are the ones now being asked to take another financial hit.

It leaves me to conclude. Sometimes life would be a lot easier if you were less ambitious.

Muvado can help you manage your income tax more efficiently going into 2023/24 and we’re happy to chat to anyone facing the challenges with the rising cost of living.

This content was prepared by Gregory Deer, a Chartered and CERTIFIED FINANCIAL PLANNERTM for Muvado Money Limited, an appointed representative of Sense Network Limited.

This document was prepared based on our knowledge of intended taxation and legislation at time of writing on 18th November 2022. Levels, bases and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

None of the information in this communication should be seen as a recommendation and you should seek independent financial advice.