London’s income tax bombshell hits a record £51.6 billion


London’s income tax bill has soared to a record £51 billion with 11 boroughs paying more to Treasury coffers than any region outside of the South East, official figures revealed on Thursday.

Kensington had the biggest income tax bill of any constituency of nearly £3.5 billion, more than the whole of Northern Ireland put together.

The capital contributed a staggering £51.6 billion to the Government in this levy in 2020/21, up from £48.3 billion in 2019/20 and £33.7 billion in 2010/11, a rise of nearly £18 billion over a decade.

The South East paid the second highest amount of income tax in 2020/21 at £36 billion, followed by the East of England at £20.4 billion, though the later was eclipsed by the £20.8 billion from 11 London boroughs.

The Bank of England in the City (REUTERS)
The Bank of England in the City (REUTERS)

The analysis was published ahead of the interest rate decision by the Bank of England’s monetary policy committee as million of households are struggling with their weekly budgets in the cost-of-living crisis.

With inflation staying stubbornly high, above ten per cent according to the latest figures, an increasing number of people will be dragged into paying more income tax as wages rise by a series of “stealth levies” imposed for another five years.

Ministers were also having to respond on Thursday to an urgent question in the Commons on food price inflation which hit 18 per cent in February, a 45-year high, amid shortages of some vegetables including salad.

The figures showed Cities of London and Westminster paid £2.94 billion in income tax in 2020/21, Chelsea and Fulham £2.51 billion, Hampstead and Kilburn £2.44 billion, Richmond Park £1.67 billion, Westminster North £1.52 billion, Battersea £1.43 billion, Wimbledon £1.3 billion. Islington South and Finsbury £1.24 billion, Holborn and St Pancras £1.23 billion, and Hornsey and Wood Green £1.05 billion.

Esher and Walton had the biggest bill outside of London at £1.44 billion.

The other 13 in the top 25 biggest contributors were Finchley and Golders Green £1.04 billion, Poplar and Limehouse £1.02 billion, Putney £1.02 billion, Twickenham £987 million, Bermondsey and Old Southwark £975 million, Tooting £959 million, Hammersmith £894 million, Brentford and Isleworth £883 million, Ealing Central and Acton £873 million, Beaconsfield £863 million, Hitchin and Harpenden £847 million, South West Surrey £837 million and Runnymede and Weybridge £813 million.

Taxes will continue to rise for millions of workers through a series of so-called “stealth taxes”, including freezing the thresholds above which people start paying the 20p basic rate of income tax and the 40p higher rate until 2028, at £12,570 and £50,270 retrospectively.

The Institute for Fiscal Studies estimates that the freezing of income tax and National Insurance contributions allowances and thresholds will mean around an extra £500 of tax a year for many basic rate taxpayers, as inflation and wages rise, and some £1,000 for many higher rate payers.

Sir Ed Davey, leader of the Liberal Democrats who compiled the income tax figures, said: “This stealth tax raid will squeeze people’s finances even more at a time when mortgages and rents are already soaring.

“Every month, families are looking at their paypacket and feeling short-changed, with yet more of their wages eaten up by endless tax hikes.”

The Treasury defended the tax hikes which are part of the Government’s plans to restore stability in the public finances but will take the nation’s tax burden to the highest since the Second World War.

A spokesman said: “After borrowing hundreds of billions to support the economy during the pandemic and since Putin’s invasion of Ukraine, it’s vital we stick to our plan to halve inflation this year and reduce debt to promote long-term growth.

“We have a fair and progressive tax system. The more you earn, the more you pay.

“That’s why over half of all income tax is contributed by the top five per cent of payers and we have doubled the tax-free Personal Allowance since 2010, taking three million of the lowest earners out of paying income tax altogether.”

Research by the Commons Library found that there will be 450,000 more higher rate income tax payers in London by 2027/28 due to the income tax threshold freezes, and 500,000 in the South East, by far the biggest increases.

There will also be an additional 300,000 basic rate payers in the capital, and 400,000 in the South East.

The region with the fourth biggest income tax bill in 2020/21 was the North West at £15.2 billion, followed by the South West £13.4 billion, Scotland £12.9 billion, West Midlands £11.6 billion, Yorkshire and the Humber £10.3 billion, East Midlands £10.1 billion, Wales £5.37 billion, the North East £4.53 billion and Northern Ireland £3.07 billion.

Kensington’s income tax contribution rose from £2.94 billion in 2019/20 to £3.49 billion, with increases both from the average employment and average self-employment streams.

Income tax is levied on most sources of income including pay from employment, profits from self-employment, private and occupational pensions, retirement annuities, state retirement pensions, foreign income, income from property, taxable social security income, savings income, income from shares (dividends) and income from trusts.

Employees who receive non-cash benefits from their employers such as company cars, fuel, medical insurance, living accommodation or loans also pay income tax on these benefits.