London and South-East hit with record £100billion income tax grab as changes bite

Londoners paid £59.3 billion to the Treasury annually  (Victoria Jones/PA) (PA Wire)
Londoners paid £59.3 billion to the Treasury annually (Victoria Jones/PA) (PA Wire)

The income tax grab on London and the South-East has topped more than £100 billion a year for the first time, official figures reveal.

They show Londoners paid £59.3 billion to the Treasury in a single year and South-East residents £41.4 billion, just over half the total for the whole of England of £198 billion.

The bill is being driven up by the Chancellor’s stealth tax freeze on the thresholds for paying different rates of income tax.

Around one million people in London and the South-East will have been brought into paying the higher rate of income tax due to the threshold freeze policy by 2027/28, according to figures from the House of Commons Library.

Twenty out of the 25 parliamentary constituencies with the highest income tax bills were in London including Kensington handing over £3.37 billion, slightly less than the whole of Northern Ireland at £3.44 billion.

Second highest was the Cities of London and Westminter at £3.15 billion, followed by Hampstead and Kilburn at £3.06 billion, Chelsea and Fulham £2.87 billion, Richmond Park £1.95 billion, Westminster North £1.87 billion and Battersea £1.68 billion.

In London’s commuter belt, Esher and Walton was seventh highest among the top 25 with a bill of £1.72 billion, Beaconsfield was on £1.06 billion, Hitchin and Harpenden £1.02 billion, and Chancellor Jeremy Hunt’s current constituency of South West Surrey, just under £1 billion.

The latest figures, published recently by HM Revenue and Custom are for 2021/22, the first year of the Chancellor’s freezes on income tax and National Insurance thresholds, and so these totals will almost certainly have risen since then.

They also show how Londoners on average are paying more income tax than people in all other regions of the country.

The median amount paid - the number in the middle if all taxpayers in London were put in a line - is £3,650 a year.

Using this calculation method means that the super-wealthy do not dramatically push up the average figure for the capital.

But London taxpayers still pay on average at least £600 more than the next highest paying region, the South-East at £3,010.

The figure for the East of England is £2,790, the South-West £2,470, the East Midlands £2,370, the North-West £2,360, West Midlands £2,340, Yorkshire and the Humber £2,300, the North East £2,230, Scotland £2,560 and Wales £2,280.

Liberal Democrat Leader Sir Ed Davey, MP for Kingston and Surbiton, said: “The hard-working middle have already faced the biggest fall in living standards on record, yet Jeremy Hunt is compounding their misery with his freeze on income tax thresholds.

“Every month, families are looking at their paypacket and feeling short-changed...this Conservative government is taking voters across London and the South East for granted.”

The income tax hit on London has been growing, at £51.6 billion in 2020/21, and £36 billion in the wider South East, a total of £87.6 billion.

So, the revenue from these two regions for the Treasury rose by £13.1 billion to £100.7 billion in 2021/22, a hike of nearly 15 per cent.

This was a far bigger jump than the £4.5 billion increase for the two regions from £83.1 billion in 2019/2020 (London £48.3 billion/South East £34.8 billion) to £87.6 billion in 2020/21.

The increases have followed a similar pattern in previous years for the two regions, with a joint figure of £82.4 billion in 2018/19, £79 billion in 2017/18 and £76.6 billion in 2016/17.

A Treasury spokeswoman said: “After providing hundreds of billions of pounds to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay it back. Our tax system is progressive, which means that over half of all income tax is paid by the top five per cent of earners.

“Now the economy is turning a corner, we have cut National Insurance by a third.”

Mr Hunt lopped 2p off National Insurance in the Budget in March, having done the same in the Autumn Statement last year.

Once this is added to the stealth tax threshold freezes, London households’ disposable income will on average go up by £110 in 2024/25, the biggest of any region.

But it will then fall by £10 in the capital in the following year, by £110 in 2026/27 and £230 in 2027/28, as the Chancellor’s stealth taxes bite deeper, according to the Commons Library figures.