The number of Britons paying higher rate tax is set to plunge by 1 million, or more than a quarter, in just two years as the recession hits the earnings of the best paid, and leads to some losing their jobs.

Official estimates from HM Revenue & Customs project that numbers paying higher rate tax at 40 per cent will plummet from 3.89 million in 2007-08, to only 2.9 million in the present, 2009-10 financial year.

It ends an inexorable rise in those bearing the burden of top rate tax over the past decade. In 1997, there were only just over 2 million on the 40 per cent rate.

The total amount of tax paid by those in the higher rate category is also forecast to tumble, from £91 billion to £75.1 billion. £53.5 billion of the total for this year is expected to come from the 40 per cent marginal rate alone — down from £50.5 billion in 2008-09, HMRC expects.

The fall in the numbers of higher rate taxpayers, and the size of their contribution to the Treasury’s coffers, comes partly due to an increase in the earnings threshold above which the 40 per cent rate applies. This was raised to £37,400 for the present tax year, from £34,800 previously.

But the drastic scale of the decline in those paying the higher rate is driven by, and emphasises, the growing toll from the recession on both earnings and employment.

The spread of pay freezes, and some actual wage cuts as slump hits home is underlined again today by the latest survey of wage deals from Incomes Data Services, the pay consultancy.

One in three businesses is now holding off from giving staff any pay rise, IDS reports. The average size of new pay deals has sunk from 3 per cent earlier this year to just 2 per cent now, mainly because of a growing number of wage freezes, the consultancy found after study 145 pay settlements made in the three months to April.

Pay for managers at many businesses is being squeezed still harder, with the average management pay deal now worth just 1 per cent, down from 2.4 per cent at the start of the year, a separate IDS study also reports. Further confirmation of the intensifying squeeze on wage packets came in a snapshot of take-home pay from VocaLink, the payments group. It found that average pay growth fell last month to a new low of 1.1 per cent.

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