Millionaires will get a £55,000 tax cut next year as a result of Kwasi Kwarteng’s mini-Budget.
The chancellor annoucned on Friday announced that he was scrapping the 45 per cent top rate of income tax paid by those earning at least £150,000.
It means anyone earning over £50,271 will be taxed at the same 40 per cent rate.
The move will benefit around 660,000 high earners – saving them on average £10,000 a year.
An analysis by the the Resolution Foundation think-tank has revealed the changes mean someone earning £200,000 will gain £5,220 a year.
And those on £1 million will save an astonishing £55,220 a year.
But for those earning just £20,000, the annual saving will only amount to £157.
Torsten Bell, the chief executive of the Resolution Foundation, said it meant someone earning £1 million was saving “twice what a typical earner brings home a year”.
Kwarteng has defended the move as necessary to stimulate growth in the economy. “High taxes reduce incentives to work and they hinder enterprise,” he told MPs.
But Lisa Nandy, Labour’s shadow levelling up secretary, said it was “extraordinary”.
“Political choices like handing £55,000 to millionaires are just impossible to justify when people are struggling to afford the basic essentials, food, energy costs and housing,” she told Sky News.
The figures show 65% of the gains from personal tax cuts announced by the chancellor go to the richest fifth of households, who will be better-off on average by £3,090 next year.
And 45% will go to the richest 5% alone, who will be £8,560 better off.
Just 12% of the gains will go to the poorest half of households, who will be £230 better off on average next year.
Current income tax rates
Challenged in the Commons over the savings handed to millionaires, Kwarteng would not be drawn on a precise figure.
He told MPs the top rate was returning to what it had been for “20 years” including under the last Labour government.
Between 1989 and 2010 the top rate of income tax was 40%. Labour raised it to 50% in April 2010 in the wake of the financial crisis. In April 2023 David Cameron’s coalition government reduced it to 45%.
In his mini-Budget, Kwarteng also confirmed the reversal of the national insurance rise introduced by Boris Johnson’s government in April.
The tax cut will benefit the poorest by just 63p a month, according to the Institute for Fiscal Studies.
By contrast, the respected think-tank said the move would be worth around £150 a month to higher earners.