In 1696, short of money and fresh from a war with France, William III went looking for something to tax. He settled on windows.
The logic was almost charming. You couldn’t decently inspect a man’s income (asking was thought a gross intrusion on his liberty), but you could stand in the street and count his windows. More windows meant a bigger house, a bigger house meant more money, and more money meant he could spare some. A flat charge on every dwelling, then a higher band above ten windows, then a higher one again above twenty. Wealth, made visible and countable from the pavement.
People did what people do. They bricked up the windows.
You can still see it. Across the country there are Georgian terraces with neat blind arches where glass used to be, rooms that were sent dark rather than pay. In Scotland they were nicknamed “Pitt’s pictures.” Some houses were simply built without bedroom windows in the first place.
And here is the part that ought to give any Chancellor pause. By the 1720s the tax was reportedly raising around £100,000 a year less than it had two decades earlier, not because Britain had grown poorer, but because Britain had grown darker. The state set out to tax daylight and collected a good deal of gloom instead.[*1]
It took until 1851 to concede the thing was a mistake and repeal it.
We don’t brick up our windows any more. We brick up our incomes.
The £100,000 Cliff
The modern equivalent is hiding in plain sight, and it starts at £100,000.
The personal allowance, the first £12,570 you can earn tax-free, is withdrawn once your income passes £100,000: £1 of allowance gone for every £2 earned above the line, until it disappears entirely at £125,140. In that band, each extra pound is taxed at 40%, and quietly drags a pound of formerly tax-free allowance into the higher-rate net behind it. The result is an effective marginal rate of 60%, or 62% once National Insurance is added.
It appears on no rate card. Gordon Brown introduced it in 2009, and the £100,000 line hasn’t moved an inch since.
Now look at what happens just above the band. Cross £125,140 and your marginal rate falls, to 45%, or 47% with National Insurance. So a consultant on £110,000 hands over more of her next pound than a banker on £1.1m. There is a stretch of the British income scale where earning slightly less is taxed more harshly than earning a great deal more.
It Gets Worse
If that were the worst of it, we could file it under “merely irrational.” It isn’t the worst of it.
Tax-free childcare and the government’s free hours both vanish the moment one parent’s income touches £100,000. Not taper. Vanish. Dan Neidle of Tax Policy Associates, whose work on this is essential reading, points out that for a London family with two children under three the support can be worth roughly £10,000 per child. Lose it in one go and your take-home pay can actually fall. Neidle’s modelling shows a household in that position not clawing back to where it started until gross salary reaches around £145,000.
Read that again. There is a stretch of the income scale where a pay rise leaves you poorer. A single penny over £99,999.99, in the wrong circumstances, can cost a family the thick end of £20,000. That is a 20,000% tax rate on that first pound.
Underneath all of this sits the High Income Child Benefit Charge, which claws back child benefit between £60,000 and £80,000 and adds its own bump to the curve. Layer a student loan on top and, in Neidle’s charts, the marginal rate for an ordinary professional climbs past 70%.
Nobody Designed This
None of it was designed, exactly. It accreted. Each cliff was politically tidy in isolation: surely high earners shouldn’t draw child benefit, surely they don’t need a tax-free allowance. We’ve written before that every chancellor likes a go at capital gains tax; income tax gets the same treatment, only more quietly. The trouble is that “high earner” was defined once, in cash, and then left frozen while wages climbed around it.
The Institute for Fiscal Studies has a name for thresholds quietly doing the work politicians would rather not do out loud: fiscal drag. When Brown drew the £100,000 line, around one taxpayer in fifty earned that much. It’s now more than one in twenty, and rising every year the line stays put.
And here the Georgians come back into view. Faced with a daft incentive, people don’t sit still. They cut their hours. They turn down the promotion. They divert the awkward slice of salary into a pension to duck back under £100,000. Senior hospital doctors, whose full-time consultant pay now starts just short of the cliff, are widely reported to do exactly this, and the NHS feels it in the rota.
The Exchequer taxes the daylight and, three centuries on, collects the gloom: less work done, less growth, and in the end less tax. We’ve simply moved the bricks indoors.
The Fix Isn’t a Mystery
The remedies are well rehearsed. Neidle’s prescription is modest and sensible: smooth the personal allowance taper over a wider band so the spike comes down, uprate the frozen thresholds in line with earnings, and, at the very least, stop making things worse. The IFS goes further on the architecture, arguing that the taper should simply go, returning income tax to a clean two-rate structure, and that income tax and National Insurance, two taxes levied on broadly the same thing in two entirely different ways, ought to be merged. The IFS, not a body given to drama, calls keeping them separate “patently absurd.”
The common thread is simplification, and it matters for more than tidiness. A tax that most people cannot understand is a tax that most people will quietly work around, exactly as they once bricked up their windows. Thresholds that are legible and that move with wages would be better understood, harder to game, and, as the 1720s demonstrated rather neatly, probably better at collecting revenue. A system that punishes the act of earning more should not be surprised when people respond by earning less.
All of which reflects the rules as they stand today, under current legislation, and everyone’s circumstances are different. From our desks in Hook, advising clients across Hampshire, Surrey, Berkshire, Sussex and Kent, we spend a fair amount of time helping people find the windows in a system that would rather they didn’t notice them. The Georgians chose darkness over the taxman. Four centuries on, the least we might do is stop asking people to make the same choice.
[*1]: The phrase “daylight robbery” is almost always said to come from the window tax. It almost certainly doesn’t. It first appears in print in the twentieth century, comfortably after the tax was repealed, and etymologists can find no link to it. A lovely story, quietly repealed by the evidence.