The Bright Blue think tank has called on Andy Burnham to increase the higher rate of Income Tax to 42 per cent for workers earning between £50,270 and £125,140. The proposal, which would see the rate rise from its current 40 per cent, is designed to equalise benefits between self-employed workers and employees, such as extending parental leave and sick pay to the self-employed.
A revenue-neutral shift
According to the think tank's report, raising the higher rate by 2.7 percentage points, rather than the 7.6 points that would be needed to fund the perks directly, would keep the policy revenue-neutral. The effect would be a reduction in overall tax for employees — either a 1.1-point cut in the basic rate of Income Tax or a 4.9-point cut in the higher rate — while still increasing the tax contributions of the self-employed.
Bright Blue argues that this approach is more progressive than simply increasing National Insurance contributions. The report highlights that the average employee currently pays £98.73 less in tax each year due to the Employment Allowance. To mirror this for the self-employed, they propose a Self-Employment Allowance, where self-employed workers only begin to pay National Insurance above a £100-a-year threshold.
Support from economists
The report notes that shifting tax from National Insurance towards Income Tax has been advocated by numerous influential figures and organisations, including Sir James Mirrlees in the 2010 Mirrlees Review and, more recently, in the 2025 paper Tax Reforms for Growth by the Centre for the Analysis of Taxation, the Institute for Public Policy Research, the Joseph Rowntree Foundation, the New Economics Foundation, Labour Together/ThinkLabour, the Adam Smith Institute, the Centre for Policy Studies and Bright Blue.
“Taxes on employment and self-employment are already equalised in several Western countries, including the US, Canada and Germany,” the report adds. “This would be a return to a system more similar to what we saw in the UK in the mid-1970s, when NI rates on the self-employed used to be deliberately higher than for employees.”
Implications for workers
If adopted, the change would affect workers in the higher-rate tax band, which includes many professionals, managers and higher-income earners in the West Midlands. For employees, the reduction in Income Tax rates could offset the increase in the higher rate, resulting in a net gain for most. Self-employed workers, on the other hand, would see their tax contributions rise, but would gain access to benefits like parental leave and sick pay, which they currently lack.
The proposal comes as Andy Burnham, the Mayor of Greater Manchester and a prominent Labour figure, has been vocal about reforming the tax system to make it fairer. The Bright Blue report is part of a broader debate on how to fund social security for the self-employed, a growing segment of the UK workforce.
