Shabana Mahmood backs plan for 5p HMRC income tax change ahead of becoming Chancellor

Shabana Mahmood, widely expected to become Chancellor under incoming Prime Minister Andy Burnham, has backed a plan to increase the top rate of income tax from 45p to 50p, marking a significant 5p rise.

Ms Mahmood's position on the tax change is well-established. In a House of Commons debate in 2014, she tabled an amendment requiring the chancellor to assess restoring the 50p top rate of income tax. At that time, she strongly opposed the Coalition government's decision to cut the top rate from 50p to 45p, accusing ministers of giving an absolutely huge tax cut to the wealthiest in our country while ordinary households struggled.

In her 2014 statement, Ms Mahmood argued that when the deficit is high it cannot be right to cut the top rate of tax and pledged that the next Labour government will put that rate back to 50p while we get the deficit down. The respected Institute for Fiscal Studies estimated that such a policy would cost the exchequer around 700 million a year.

The financial impact on high earners would be substantial. Under current thresholds, a £150,000-a-year earner would pay an extra £1,240 per year, while those earning £200,000 annually would face £3,740 additional tax.

As reports suggest Ms Mahmood's imminent appointment to Number 11 Downing Street, her first major task if confirmed as Chancellor would be to draw up an emergency cost of living package. Reports indicate this could include targeted support for energy bills, a rent freeze and a cap on bus fares.

However, some City figures have raised concerns about Ms Mahmood's appointment. One leading financier questioned her lack of financial experience, noting she has no background in finance. Despite such reservations, another City figure suggested that market traders were reassured by the appointment, having feared someone like Ed Miliband might be appointed as Chancellor.