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The number of people who paid the highest rate of income tax topped 1mn for the first time in 2024-25, after long-frozen thresholds dragged 720,000 people into the additional rate band, new data shows.

If the top 45 per cent tax rate had moved in line with inflation it would be worth £211,562 today and would exclude two-thirds of people currently paying it, according to calculations by Bowmore Financial Planning, an advisory firm, underlining the impact of the existing freeze ahead of the autumn Budget.

A freedom of information request it submitted to HM Revenue & Customs showed 720,000 people paid the 45 per cent additional rate in the 2024-25 tax year on income above £125,140, but below £211,562. A further 385,000 people who had income above £211,562 in 2024-25 paid the additional rate, the FOI showed.

“The way that this stealth tax has operated for 12 years means more and more people are being dragged into paying the highest rate of tax,” said John Clamp, chartered financial planner at Bowmore Financial Planning.

“When the 45 per cent rate was introduced, it was meant for those on what were then the very highest salaries — the equivalent of over £210,000 today. Now, it’s hitting people earning almost £100,000 less than that.”

Clamp added that higher earners often had higher costs and many people were reluctant to boost their earnings if, as a result, they fell into the additional tax rate band.

“It’s perhaps unsurprising productivity is stagnating. If extra work barely boosts take-home pay because of frozen tax bands, people are less inclined to work longer hours or push themselves — and that ultimately drags on the economy,” he said.

The additional rate of income tax was introduced as an emergency measure in 2010 to help raise extra money following the global financial crisis. It was originally set at 50 per cent for incomes over £150,000. The rate was reduced to 45 per cent in 2013 and in 2023 the threshold was lowered from £150,000 to the current £125,140.

Since April 2022, the government has frozen several allowances and tax thresholds, including income tax thresholds, rather than raising them in line with inflation. The move has increased tax receipts as higher pay tips more workers either into the tax system or on to higher rates, a phenomenon known as “fiscal drag”.

The freeze is set to remain in place until 2028, but many commentators expect chancellor Rachel Reeves to extend it at the Budget on November 26, as she tries to fill a fiscal hole of between £20bn-£30bn.

In a speech on Monday, Reeves left open the question of whether Labour would break its manifesto promise not to raise income tax rates.

Asked if she was prepared to break it, even if that might cost the party the next general election, Reeves said: “We have got to do the right thing.”

She added: “If you’re asking what comes first, the national interest or political expediency, it’s the national interest every single time for me and it’s the same for Keir Starmer too.”

The Treasury said: “The UK’s income tax system is highly progressive with an internationally high personal allowance. These figures relate to the previous government’s 2022 Autumn Statement. This government inherited the previous government’s policy of frozen tax thresholds and lowered additional rate threshold.”

Given the large amount of money that Reeves needs to raise, many tax experts believe she will decide to raise revenue by making changes to income tax, either by raising rates or lowering thresholds.

HMRC’s statistics estimate a 1p increase in the basic rate of income tax would raise £8.2bn from those liable to this rate in 2028-29, while a 1p increase would raise £2.1bn on higher-rate taxpayers and £230mn from additional-rate taxpayers.

Gary Ashford, partner at Harbottle & Lewis, a law firm, said he was “struggling to understand why you would have made [Monday’s] speech if you weren’t going to raise income tax”.

“I do think we could end up with her choosing income tax, as whatever way you try and do the maths, you’re not going to get anywhere close to what she needs without it.”

Alongside big changes to income tax, he predicted a complicated Budget with “multiple measures”.

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Major shareholders in Diageo have expressed disquiet over its failure to name a new chief executive this week after the Guinness owner unveiled a profit warning that sent its shares down to ten-year lows. 

The board of the FTSE 100 drinks group has considered external candidates for the chief executive role, with names such as outgoing GSK boss Dame Emma Walmsley being floated, according to people familiar with the situation.

This is despite interim chief executive Nik Jhangiani being widely tipped for the role on a full-time basis. Jhangiani said in August at Diageo’s full-year results that he expected the company to name a full time replacement for Debra Crew by the end of October.

This week’s trading statement — which included a profit warning — and the company’s annual general meeting on Thursday passed with no mention of the new chief executive, sending shares lower. They have fallen 32 per cent in 2025 to £17.26.

Kai Lehmann, senior analyst at Flossbach von Storch, a top 10 Diageo shareholder, added that investors are “becoming increasingly puzzled as to why it’s taking so long”, adding: “The market needs clarity . . . We would like to see a solution in place soon.”

Another UK-based institutional investor said the lack of an announcement this week was surprising.

Diageo told the Financial Times: “We are making good progress with our search for a new CEO and will update the market in due course.”

Crew, who led Diageo for two rocky years, resigned in July after concluding she had lost the board’s support amid widespread speculation that Jhangiani, then chief financial officer, was angling to replace her. He was appointed interim chief executive in the aftermath. Well liked among institutional investors since he joined as CFO in 2024, Jhangiani was widely expected to be confirmed as permanent boss this week.

Despite earning the respect of shareholders, Jhangiani has failed to quell internal unease. Since Crew’s exit in July, members of Diageo’s senior leadership have expressed concerns to the chair, Sir John Manzoni, over the circumstances leading to Crew’s exit, three people familiar with the matter said. 

One added that the issues raised with the board may slow down the appointment process. Another person briefed on the search said that Jhangiani’s permanent appointment to the role was far from certain.

The delay in naming Crew’s successor has also stalled major strategic decisions in case an external hire arrives with a different plan, two other people close to the company said. 

A Diageo spokesperson said: “We categorically deny that the chairman, or the board, has received representations from senior management. The board has undertaken a rigorous search process to identify a new CEO, which includes both globally leading internal and external candidates.”

External candidates considered included Walmsley, according to several people familiar with the situation.

Walmsley, who will leave GSK next year, served on the board of Diageo for a brief period in 2016. Julie Brown, GSK’s chief financial officer, is a current director.

A person close to GSK said Walmsley has not engaged in any discussions with the company or its board and has no interest in the position. Diageo declined to comment on the matter. 

But the ongoing leadership uncertainty has come amid a global downturn in alcohol demand and investor discontent on performance. Diageo on Thursday lowered its forecast for sales and profit growth this year on lacklustre Chinese spirits demand and a weaker than anticipated US consumer environment, sending shares lower.

Ben Needham, UK equity fund manager at Ninety One, said Diageo’s brands are “incredibly vulnerable” to potential takeovers amid the turbulence at the company. “I’m surprised that we haven’t heard something clearer on the succession, given all this.” 

Another large Diageo shareholder said: “No one has proffered a better name” than Jhangiani. 

The investor added that Jhangiani’s £8.5mn Diageo stock award also provided ample motivation. While proxy adviser Glass Lewis advised shareholders to vote against the remuneration report on the basis that there was insufficient rationale for the awards, which are not performance-based, 89 per cent backed it at Thursday’s AGM.

Additional reporting by Hannah Kuchler, Ashley Armstrong and Ivan Levingston in London

As you round the corner on Shanghai’s Shimen Second Road, a giant ship appears like an apparition. Suspended from its hull, the anchor that descends to the street is in the shape of two six-foot-tall letters: LV.

“The Louis”, a ship-shaped exhibition space and store, is the brainchild of Louis Vuitton and an attempt to navigate the choppy waters of China’s luxury market. Once the driver of global growth, it is now a source of uncertainty for the world’s biggest brands.

“It’s not often you see a brand making this big an investment . . . and I know it’s not long-term,” said Grace Sze, a tourist from Hong Kong queueing to enter. “To spend that much money, I think it’s amazing.”

Louis Vuitton has not disclosed the cost of its new ship, which has an exhibition, including a robotic arm testing the hinges on vintage Louis Vuitton suitcases, a café and a gift shop where small handbags are available for Rmb15,500 ($2,104).

But the group’s owner LVMH said it had helped drive a 7 per cent year-on-year increase in China sales in the third quarter, albeit from a low base. In Shanghai, the brand says it has drawn in hundreds of thousands of visitors since it opened in June.

“It’s a lot of fun, a lot of excitement,” said LVMH chief financial officer Cécile Cabanis. “All our neighbours are very happy that it’s driving so much traffic.”

But glamorous installations like this aside, there is a persistent sense of caution in China’s luxury market. Brands are retreating to the most exclusive locations, adjusting to slower growth and changing consumer sentiment.

As a four-year property slowdown grinds on and consumer prices remain stuck in deflation, there are signs of people are reining in their spending and looking for discounts.

In their most recent results, brands insisted the market had stabilised but continued to warn about the outlook.

“Overall the macro has not changed fundamentally,” Cabanis said, citing continued pressures in the property market and around employment. “We consider it’s still going to take time until we have a rebound.”

Other luxury groups including Prada, Hermès and Kering — owner of Gucci — said they saw early signs that the Chinese market had stopped declining. But improvements came against a low base.

“Chinese consumption remains under pressure,” said Nick Anderson, an analyst at Berenberg.

From the early 2000s, China was the luxury industry’s engine of growth as rapid economic expansion fuelled a rising middle class keen to display its new wealth. By the time the Covid-19 pandemic arrived, Boston Consulting Group estimated the country made up a quarter of global demand.

But after China’s strict Covid lockdowns came to an abrupt end in 2022, the rebound in consumer spending was much smaller than expected, weighing heavily on the global luxury market, which according to Bain entered its first slowdown in 15 years in 2024.

“During the boom times [brands] overextended and covered too many cities,” said Nick Bradstreet, head of Asia Pacific retail at estate agent Savills.

Before Covid, they would target 40 to 50 cities across China and “the only discussion would be how long it’s going to take to get there”, he said. But today, they target fewer places, and the 10 biggest cities account for 70 per cent of all the country’s luxury sales.

The Louis Vuitton ship exterior is not permanent but is expected to remain in place for four years, according to a person familiar with the details. Other brands have also sought to draw in crowds with exhibitions, including a Gucci event in Shanghai this year celebrating its signature Bamboo bag, where craftspeople were flown in from Italy.

Outside, crowds of tourists stop to take photos to the extent that signs with “filming guidelines” have been put up nearby.

“It makes sense that LVMH did this while the market is down,” said one industry veteran. “The Chinese market was not improving, so they needed to do something to move the market for themselves.” 

But they also questioned its appeal to the industry’s core consumers. “The ship is fun and exciting to people who have seen it on TikTok, but would you ever see Hermès or Chanel park a cruise ship in the middle of a city?”

Anderson suggested the pre-Covid global luxury boom was driven by one-off factors, including US stimulus and the rise of the Chinese consumer. The global market for luxury goods is expected to grow between 0 and 4 per cent in 2025, according to Bain’s estimates. Between 1996 and 2024, the rate was 5 to 6 per cent a year.

Much of the outlook hinges on a handful of China’s biggest cities, and whether the huge crowds drawn to spectacles like the Louis Vuitton ship are willing to spend.

Ms Lei, visiting from Shanghai’s Pudong district, did not get anything but already has two Louis Vuitton bags, bought about a decade ago. “Now it’s a time of decline for the economy,” she said, but added: “If I like it . . . I can definitely buy it.”