Shabana Mahmood, the Birmingham MP widely tipped to become Chancellor in Andy Burnham's cabinet, has backed a plan to raise the top income tax rate from 45p to 50p. This would mean an extra £3,740 a year for those earning £200,000, according to personal finance experts.
Proposed Tax Increase Details
The 5p hike would also affect those on £150,000 a year, who would pay an additional £1,240 annually. The current 45% additional rate applies to taxable earnings above £125,140. In a 2014 House of Commons debate, Mahmood criticised the Conservative government for reducing the rate from 50p to 45p, calling it a "bad choice" that prioritised tax cuts for millionaires while ordinary people struggled.
Mahmood's Stance and Background
Mahmood said: "This Government made a bad choice – the wrong choice – when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it." The Institute for Fiscal Studies estimated in 2014 that such a policy would cost the exchequer around £700 million a year.
Political Context
The speculation comes as Andy Burnham is set to become Labour Party leader on Friday. In an interview with Gary Lineker, Burnham said the party would need to "work quite hard" to ensure it can "pay our way," adding that "at some point that might be having to ask for a little more." Earlier this month, he indicated there was "some room within [Labour's] manifesto for movement on tax."
Impact on Taxpayers
If implemented, the 50p rate would significantly increase the tax burden on high earners. For a £200,000 earner, the extra £3,740 would be a substantial addition, while those on £150,000 would face an extra £1,240. Critics argue it could discourage investment and economic growth, while supporters say it would raise revenue for public services.
