2,500 millionaires to share £1 billion in savings thanks to tax cut

Pound coins and bank notes.
Economists say £1bn will be shared among 2,500 millionaires under the government's tax cuts. (Getty Images)

The government's plan to cut the top rate of income tax means 2,500 millionaires will end up sharing £1bn in gains, economists have claimed.

Chancellor Kwasi Kwarteng and prime minister Liz Truss have faced a barrage of criticism that last week's mini-budget will make the rich even richer in the midst of a cost of living crisis, which was further exacerbated on Monday when the pound fell to its lowest ever value against the US dollar.

In one of the most controversial measures, Kwarteng announced the top rate of income tax will fall from 45% to 40% from next April.

University researchers have said the move will be of greatest benefit to those people who have incomes of more than £1m.

Read more: Kwasi Kwarteng announces biggest tax cuts since 1972

Chancellor of the Exchequer Kwasi Kwarteng leaves 11 Downing Street to make his way to the Treasury Department to deliver his mini-budget. Picture date: Friday September 23, 2022.
Chancellor Kwasi Kwarteng's mini-budget has been widely criticised as being unfair to people on lower incomes. (PA)

According to research by Arun Advani, David Burgherr and Andy Summers at the London School of Economics and Warwick University, analysing HMRC tax returns data, almost half of the total tax saving created by the policy will go to millionaires.

Those earning £150,000 to £250,000 a year will only receive 10% of the gain made by cutting the 45p tax rate.

In addition, the researchers found that scrapping the rate will grant £1bn in savings to just 2,500 people, all of whom have an annual income of more than £3.5m.

In a tweet, Burgherr wrote: "On average, that's an extra £400k for each of them, every year."

Watch: Kwasi Kwarteng insists tax cuts favour people across income scale

The researchers said cutting the 45p rate was of most benefit to those in the finance and professional sectors, such as bankers and law firm partners.

The research was published on the morning that the pound fell to its lowest level against the dollar since decimalisation in 1971.

Read more: Chancellor Kwasi Kwarteng casts doubt over future energy bill support

The pound, which has been slipping steadily in value in the past few months, went into freefall after Kwarteng's mini-budget announcement on Friday.

Sterling fell by more than 4% to just 1.03 dollars in early Asian trading, although it later regained some ground to 1.07 dollars, just days after Kwarteng announced a raft of tax cuts.

Confidence in the pound is at all-time low following last week's government mini-budget, which unveiled the biggest tax cuts in 50 years.

Financial experts have warned that the pound's drop towards parity with the dollar will send the cost of goods soaring even higher, including a pint of beer.

United States dollar bills and UK pound sterling coins.
The pound has fallen to its lowest ever level against the US dollar. (PA)

Despite the pound falling off a cliff, Downing Street indicated it will press ahead its massive tax cuts package. Kwarteng has indicated that more will follow in the new year.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Comments by chancellor Kwasi Kwarteng that he will go even further with historic tax cuts, which are already being criticised as reckless, have added to the anxiety.

“The worry is that not only will borrowing balloon to eye-watering levels, but that the fires of inflation will be fanned further by this tax giveaway, which offers higher earners the bigger tax break.”

As well as cutting the 45p rate, the government also announced a reduction in the basic rate of income tax from 20% to 19% and the lifting of a cap on bankers' bonuses.

The Resolution Foundation independent think thank said the cuts will mean someone earning £200,000 a year will gain £5,220 a year, compared to someone on £20,000 a year who will gain just £157.

Watch: Pound falls to all-time low against US dollar