Listening to The Beatles' "Tax Man" had me doing research on British tax history, and I saw that the rate peaked at 99.25% during WWII. However, nearly years later, the rate was 95%.
Why were the British rates so high? What was going on? Were there civic projects happening during post WWII that required those funds?
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I'm afraid that I cannot comment on all of the ins and outs of why British tax rates were at the levels they were or what the political/economic considerations of the 1950s and 1960s were to the standard we'd normally expect at AskHistorians, but I do want to offer an important point of clarification to your question. In the period in question, there were two kinds of income tax operating in the United Kingdom: the standard income tax and the super-tax, or surtax. In the fiscal parlance of the UK today we might call these the 'standard rate' and the 'higher rate' of tax, though they aren't quite the same thing and the calculation was rather more complicated.
For most of the 1960s, anyone earning below £2,000 per year - that's about £38,000 today paid a flat rate in income tax. This was set at 8 shillings and 3 pence to the pound in 1966/67, or about 40% of earned income. Though this sounds shockingly high, the picture was complicated by a series of relief measures for those on lower incomes. You were entitled to so much money tax-free according to your living circumstances, and you could earn additional rates of relief based on your income, age, marital status and so on. The practical effect was that a great many people did not in fact get taxed at a rate of 40% or anything close to it, even though they were officially on the standard income tax rate.
Once your taxable income exceeded a certain threshold however - factoring in your various reliefs and deductions - you could become liable for the super-tax, or surtax. There was usually a substantial 'grace window' of sorts to prevent people being caught out by a freak payment or change in income hurling them into the surtax threshold, and in 1969/70 this was worth £500. At the same time, what you owed under the standard income tax structure would also increase through the removal of reliefs and deductions. You were essentially then taxed twice on incomes over a certain threshold rather than once. This is where the income tax rates well into the 90s come into play - but this was still progressive taxation, meaning the rates applied per chunk of income rather than across the whole income bracket.
If you earned £3,000/year in 1970 - about £39,000 today - you would find yourself taxed at the following rates, or 'parts':
Thus in part 2, you would pay an extra £50 in tax, and in part 3 you would pay an extra £62.50. So although on paper your income tax rate could be as high as something to the effect of around 52.5%, at no point did you pay 52.5% of tax on all your income or anything close to it if you earned £3,000/year. Your effective tax rate - the actual amount of income you paid to the government - would have been something more like 30% if you qualified for no forms of relief. When you see references to income tax rates as high as 85, 90, 95% and so on, understand that these are references to the taxation in the highest possible part of the tax schedule and not the overall burden placed on any individual. Thus in 1970/71, the income tax of someone who earned £20,000 - equivalent to about £260,000 today - would have looked something like this if they qualified for no relief or deduction:
| Income Earned | Standard Rate | Standard Payment | Super Rate | Super Payment | Total Tax Liability |
|---|---|---|---|---|---|
| £0 - 2,000 | 41.25% | £825.00 | 0.0% | £0.00 | £825.00 |
| £2,000 - £2,500 | 41.25% | £206.25 | 10.00% | £50.00 | £256.25 |
| £2,500 - £3,000 | 41.25% | £206.25 | 12.50% | £62.50 | £268.75 |
| £3,000 - £4,000 | 41.25% | £412.50 | 17.50% | £175.00 | £587.50 |
| £4,000 - £5,000 | 41.25% | £412.50 | 22.50% | £225.00 | £637.50 |
| £5,000 - £6,000 | 41.25% | £412.50 | 27.50% | £275.00 | £687.50 |
| £6,000 - £8,000 | 41.25% | £825.00 | 32.50% | £650.00 | £1,475.00 |
| £8,000 - £10,000 | 41.25% | £825.00 | 37.50% | £750.00 | £1,575.00 |
| £10,000 - £12,000 | 41.25% | £825.00 | 42.50% | £850.00 | £1,675.00 |
| £12,000 - £15,000 | 41.25% | £1,237.50 | 47.00% | £1,410.00 | £2,647.50 |
| £15,000 - £20,000 | 41.25% | £2,062.50 | 50.00% | £2,500.00 | £4,562.50 |
| Total | 41.25% | £8,250 | - | £6,947.50 | £15,197.00 (75.6%) |
Now, this is absolutely a high income tax rate by modern standards, but the very great bulk of the liability comes once you cross that £15,000 threshold. At £6,000 - worth about £79,000 today - you're looking at a tax burden of £3,262.50, or a little over 54% of total income. But keep in mind this is without factoring in the complicated system of reliefs and deductions that existed in this period of British history. Someone earning £6,000 in 1970 could claim about £900 of their earnings as tax-free. The benefit of this relief to your tax calculation depended on your exact earnings and how your tax was spread across the supertax parts - calculating this benefit was complicated by the fact tax relief worked across five bands of income, as opposed to the dozen or so parts of the supertax. As a minimum however all supertax payers could claim relief on 22% of their sub-supertax threshold earnings throughout the 1950s and 1960s, as long as this income was from earned work and not sources like share dividends. Additional rates of relief were available up to a cumulative value of about £1,500. As such, although tax rates increased with income, so too did the volume of relief on money from paid employment, cushioning some of the increase. All taxpayers were also entitled to a basic amount of relief that reduced the value of taxable income; this was £140 for most of the 1950s and £220 for most of the 1960s, and served to push back the point at which your earnings became taxable. Our aforementioned fellow earning £20,000/year, though officially a 90%+ tax payer and liable for almost 76% of his income, could push that down to below 70% through the relief system. Additional relief was available for marriage, having children and being of a certain age, whilst low earners had their own relief structure to further reduce the high base rate. You can see some details of how the relief structure worked here.
And there's another important point to be aware of here when comparing tax rates too: historic income distribution did not mirror modern income distribution. £20,000 in 1970 was indeed the equivalent to about £262,000 in terms of the cost of funding a project today accounting for inflation. But there is more than one way to measure the relative change in worth. As a wage £20,000 in 1970 is actually worth about £500,000 today; someone earning £20,000 in 1970 was earning the same amount of money more than the average worker of the day as someone earning £500,000 today. And as a share of the economy - as a chunk of all the wealth there was in the country in 1970 - £20,000 is the equivalent to an astounding £750,000 today. So although £20,000 could only buy you what about £250,000 - £300,000 could today depending on what you wanted to do with it, earning £20,000 put you in the same earnings category as someone taking home £500,000 today, and having £20,000 in the bank made you about as wealthy - relative to your fellow Brits - as someone with £750,000 in the bank today.
So although a tax rate of even 65% sounds absolutely eye-watering on a sum of £20,000 to our modern ears in 2020, it's important to keep in context that we are even as late as 1970 talking about an extremely wealthy individual today. This becomes especially relevant if we think back to the example of someone earning £3,000 that I started this answer with. Although £3,000 from 1970 has a purchasing power of about £40,000 - £45,000 in 2020, as a multiple of the average wage it's worth £75,000, and as a chunk of the economy it's worth £110,000. Here's a comparison of roughly how their tax arrangements would break down between the old and new systems of income tax in the UK if they were both single and childless:
1970 - Income Tax on £3,000
| Earned Income | Relief/Deduction | Income Tax Rate | Income Tax Paid | Super Tax Rate | Super Tax Paid | Total Tax Liability |
|---|---|---|---|---|---|---|
| £0 - £325 | £325.00 (D) | 41.25% | £0.00 | 0.00% | £0.00 | £0.00 |
| £325 - £2,325 | £444 (R) | 41.25% | £641.85 | 0.00% | £0.00 | £641.85 |
| £2,325 - £2,825 | £111 (R) | 41.25% | £160.00 | 10.00% | £50.00 | £210.00 |
| £2,825 - £3,000 | £39 (R) | 41.25% | £16.10 | 12.50% | £21.87 | £60.87 |
| Total | £919 | - | 817.95 | - | £71.87 | £889.82 (29.7%) |
2020 - Income Tax on £75,000
| Earned Income | Relief/Deduction | Tax Rate | Tax Owed |
|---|---|---|---|
| £0 - £12,509.00 | £12,509.00 (D) | 20.00% | £0.00 |
| £12,509.00 - £50,009.00 | £0.00 | 20.00% | £7,500.00 |
| £50,009.00 - £75,000.00 | £0.00 | 40.00% | £9,996.40 |
| Total | £22,960.56 | * | £17,496.40 (23.3%) |
^N.B.: ^There ^are ^additional ^deductions ^for ^someone ^earning ^£75k, ^but ^I ^am ^not ^quite ^sure ^how ^they ^break ^down. ^I ^have ^used ^a ^tax ^calculator ^for ^the ^2020 ^figure ^to ^make ^sure ^they're ^accounted ^for.