The latest insight from The Global Payroll Association (GPA), reveals that the average employee is in danger of paying more tax across 16 areas of the UK due to the fiscal drag created by the continued freeze on income tax thresholds announced in the recent Autumn Budget.
During October’s Autumn Budget, the Labour government announced that the existing freeze to income tax thresholds in Britain will continue through to April 2028. In England & Wales, this means the higher rate threshold will remain at £50,270. In Scotland, where the brackets fall slightly differently, the higher rate threshold is frozen at £43,664.
In Great Britain, the average annual salary currently sits at £38,413 after increasing by 8.3% over the past year. As such, the average employee sits within the basic rate tax bracket and remains quite a way off being pulled into the higher rate.
7 Areas already pulled into higher tax bracket in the last year
However, analysis of average earnings data, conducted by the GPA, shows that since last year alone, seven areas of the UK have seen the average earnings increase by enough to breach the higher rate income tax threshold.
The average employee in South Cambridgeshire has seen an annual pay rise of 22.4%, bringing their salary up from £44,474 to £54,428 and has, as such, crossed into the higher rate tax bracket.
An 18.5% pay increase in Reigate & Banstead means the average employee has also become a higher rate tax payer with an average salary of £54,386, while pay rises in Windsor & Maidenhead (17.5%), Wokingham (17.3%), Merton (6.9%), and Hackney (5.2%) have seen yet more employees dragged into the higher rate for the first time.
In Scotland, the average employee in East Dunbartonshire has seen a pay rise of 4.4% bring their salary up from £42,167 to £44,018 and they have, therefore, been dragged into the nation’s higher rate.
16 Areas where employees are on the brink
As well as those areas in which employees have already been pulled into the higher rate tax bracket over the past year, there are a further 16 locations where average annual salary growth now leaves local employees just shy of the threshold. As such, it’s likely they could become higher rate payers in 2025.
The average employee in Woking now earns £50,083, just £188 off the higher rate threshold.
In West Berkshire, the average employee is just £356 away from hitting the higher tax threshold, while in Tunbridge Wells, they are just £771 off of paying more tax.
The other areas of England & Wales where employees are less than £2,500 away from becoming higher rate tax payers are Epping Forest (£842), Runnymede (£1,181), Three Rivers (£1,242), Cambridge (£1,444), Guildford (£1,462), Hertsmere (£1,512), Uttlesford (£2,066), Buckinghamshire (£2,249), North Hertfordshire (£2,343), Epsom & Ewell (£2,369), and Greenwich (£2,410).
In Scotland, employees in Sterling are just £1,460 away from the nation’s higher rate tax bracket, while those in the City of Edinburgh are £2,581 away.
Melanie Pizzey, CEO and Founder of the Global Payroll Association, says: “With income tax thresholds frozen for another four years, we’re going to see a lot more people cross over to the higher rate tax bracket. As such, everyone needs to ensure that they understand income tax thresholds because this knowledge can help you be far more savvy when it comes to negotiating a pay rise.
“For example, if a small pay rise is going to tip your salary into the higher rate threshold, there is a good chance that, due to the additional tax you will pay for all earnings that fall into the higher rate bracket, you won’t actually be any better off after the raise.
“As such, you need to be pushing for a more substantial raise to ensure that you’re feeling the benefit of higher pay even if a portion of it is taxed at the higher rate. It’s rare to get two bites of the pay rise cherry, and once you’ve received one, it’ll be at least a year before you can get another. So make sure you understand where you sit in the income tax brackets before you begin negotiations.”
