High marginal tax rates in the UK aren’t just a concern for top earners—they impact the everyday lives of low and middle-income households in ways that most don’t realise. While political rhetoric continues to suggest that tax increases only affect those with the “broadest shoulders,” the reality tells a very different story.
In this article, Gordon Buist, Partner at EQ, breaks down how high marginal tax rates in the UK disproportionately affect the majority, and why it’s time to take a closer look at how this broken system affects us all.
What is a Marginal Tax Rate?
A marginal tax rate is the rate of income tax and National Insurance (NICs) you pay on your next £1 of income. In theory, it should increase gradually with income—but due to loopholes, benefit tapers, and frozen allowances, many UK earners face punitive tax rates well beyond the headline figures.
The Broadest Shoulders Myth
The phrase “broadest shoulders” has been a political mainstay since George Osborne’s 2010 Budget and was recently echoed again by Rachel Reeves in the 2024 Autumn Budget. It implies only the wealthiest feel the squeeze of tax increases.
But that simply isn’t true.
Due to a convoluted mix of benefits tapers, child benefit withdrawal, student loan repayments, and tax band thresholds, families on moderate incomes are experiencing high marginal tax rates in the UK. In fact, these earners can face effective rates as high as 69%.
Key Marginal Tax Traps in the UK System
Universal Credit Withdrawal
Universal Credit is reduced by 55p for every £1 earned above a work allowance (£1,750/month). When combined with basic rate tax (20%) and NICs (8%), this can result in a marginal rate of 83%.
Child Benefit Clawback (HICBC)
Child Benefit (£1,248 for the first child, £827 for the second) is withdrawn if one parent earns over £60,000, tapering to zero by £80,000. This results in marginal rates of up to 65%.
Frozen Personal Allowance
The Personal Allowance has been frozen at £12,570 since 2021 and is expected to remain until 2028/29, dragging more people into higher tax bands via “fiscal drag.”
Student Loans
Repayments can effectively act as a stealth tax, increasing marginal tax rates by 9% for Plan 2 and Plan 4 loans.
Scotland-Specific Issues
Scottish taxpayers pay 42% income tax plus NICs at 8% between £43,660 and £50,270, compared to a 28% marginal rate elsewhere in the UK.
Case Study: A GP Facing 65% Marginal Tax
Dr. Jones, a GP in Scotland earning £95,000 annually, considered increasing her working days from four to five to support a growing patient list.
-
4 days per week income: £63,315/year
-
5 days per week income: £71,684/year
Despite a 25% increase in working hours, her take-home pay increased by just 11% due to a 65% marginal tax rate. Factoring in childcare costs, it became financially unviable to work more.
Real-World Impact: NHS and Justice System
NHS Staffing Crisis
Many senior GPs and Consultants were forced to reduce hours between 2016–2019 due to pension tax rules, some facing marginal rates over 100%. Though reforms have helped, many have maintained part-time hours post-COVID due to tax disincentives.
A real-life example: Sunnyside Practice closed after failing to recruit new GP partners. Its 2,400 patients were transferred to Newhaven Health Centre, which already had over 4,200 patients.
Criminal Justice System Backlogs
Court clerks and solicitors face 50% marginal tax in Scotland between £43,330–£50,270. Combined with commuting or childcare costs, the financial gain from extra work is negligible, exacerbating trial delays and justice bottlenecks.
We’re All Affected by This Broken System
Whether you’re affected directly as a working parent, NHS patient, or someone relying on timely access to justice, high marginal tax rates in the UK are a systemic problem.
“Trying to tax yourself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” – Winston Churchill
It’s not just about fairness—it’s about ensuring our public services are adequately staffed and that work always pays.
What Needs to Change?
-
Simplification of tax bands and taper systems
-
Review of benefit withdrawal rates
-
Greater transparency around effective marginal tax rates
-
Better incentives for healthcare and justice workers
We help clients navigate this complex landscape and make informed decisions. If you’d like tailored tax advice, get in touch with us today.