- Londoners paid a record £71.1 billion in income tax during the 2023/24 fiscal year.
- Frozen tax thresholds have pushed more workers into higher tax brackets despite rising inflation.
- Just four London boroughs now generate more tax revenue than the entire nation of Scotland.
(LONDON) — Londoners paid a record £71.1 billion in income tax in 2023/24, up from £63.8 billion a year earlier, as frozen thresholds pulled more workers into paying tax and pushed more of them into higher bands.
The rise reflects a long-running threshold freeze that has left the personal allowance at £12,570 since 2021/22 and the higher-rate threshold at £50,271 over the same period. As pay rises track inflation, more earnings fall into taxable bands without any formal increase in tax rates, a mechanism widely described as a “stealth tax”.
London’s taxpayer base also grew. The number of income taxpayers in the capital rose from 4.57 million in 2022/23 to 4.82 million in 2023/24, and has now moved above 5 million.
Rishi Sunak introduced the initial freeze in 2022/23 when he was chancellor. Rachel Reeves later extended it by three years to April 2031 in her previous Budget, locking in a policy that raises revenue as wages rise while thresholds stand still.
That effect is visible well beyond London. Nationally, the number of higher-rate taxpayers reached 5.8 million in 2023/24, up 654,000 from the previous year, or 13%. The number of basic-rate taxpayers climbed to 29.4 million, up 1.15 million, while additional-rate taxpayers, those earning over £125,140, jumped 57% to 893,000.
The Treasury effect is clear in London’s borough-level figures. Kensington and Chelsea generated £5.48 billion in income tax, Westminster £4.94 billion, Camden £4.73 billion and Wandsworth £4.7 billion. Together, those four boroughs accounted for £19.8 billion.
That sum alone exceeded Scotland’s total income tax take of £18.5 billion. Across the wider South East and commuter belt, annual contributions reached nearly £50 billion.
The concentration of receipts in London and its surrounding region sits alongside a separate dispute over who keeps the money once it is raised. Less than £1 in every £10 of London taxes stays locally, compared with New York, where the mayor retains $5 in every $10 raised.
The Centre for London described that gap as “neither sustainable nor acceptable.” The comparison has sharpened a familiar argument in British fiscal policy: taxes are collected heavily in the capital, while spending control remains concentrated in central government.
National tax distribution figures show how much of the burden now falls on higher earners. Higher-rate taxpayers contributed 32% of total income tax revenue in 2023/24. Additional-rate taxpayers contributed 37.7%, despite making up just 2.4% of taxpayers, while basic-rate taxpayers accounted for 29.9%.
The top 1% paid 30% of all income tax, the highest share in 20 years. Separate data for 2015-16 showed people with incomes above £1 million paid an average effective tax rate of 35%, though one-quarter paid under 30% because of capital gains treatment.
Those figures help explain why frozen thresholds have become such a potent revenue tool. The government can increase receipts without changing headline rates, because wage growth alone draws more people into the tax system and moves more existing taxpayers into higher-rate bands.
Official forecasts point to that process continuing through the end of the decade. Extending the threshold freeze is projected to bring 700,000 more people into income tax by 2030/31 than would have paid it if thresholds had risen with inflation.
The same forecast puts the extra revenue from the freeze at £3.1 billion in 2028/29 and £11.6 billion in 2030/31. Those gains arrive without an announced rise in the basic, higher or additional rates.
For policymakers, the appeal is straightforward: threshold freezes raise large sums quietly. For households, the effect is less abstract. More earnings fall above the tax-free allowance, more workers become higher-rate taxpayers, and inflation-linked pay increases do less to improve living standards after tax.
London captures that tension in concentrated form. The capital produces an outsized share of the country’s income tax receipts, its highest-earning boroughs generate more than entire nations within the UK, and the share retained locally remains small. With frozen thresholds still in place through 2031, the pressure on higher-rate taxpayers and the debate over where tax is raised and where it is spent are set to continue.
