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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