UK households are set to spend £3,500 pounds more a year in tax after Government rises
More than £100bn in taxes are forecast to be raised next year, making Prime Minister Rishi Sunak’s government the biggest tax-raising parliament since the Second World War.
This means that UK households are set to spend £3,500 pounds more a year in tax than they would have without tax rises made by the current government.
By the time next year’s general election comes around, the tax bill is forecast to be 37% of national income compared to 33% when voters last took to the polling booths to elect a new government in 2019.
According to analysis by the Institute of Fiscal Studies (IFS), over the government’s latest term, spanning the tax years 2019/20 to 2024/25, tax revenues are set to increase by 4.2% of national income.
The last government to come close to Sunak’s record was Labour during Tony Blair’s first term which began in 1996. Back then taxes increased by 2.9% of national income.
Tax-raising measures that have contributed to the record high bill include the increase in the main rate of corporation tax from 19% to 25%, the energy profits levy and freezes to income tax and National Insurance thresholds.
In its report, the IFS states that economic developments mean that some of these measures will now raise “considerably” more money than the government had originally planned or intended, particularly freezes to income tax allowances which would have otherwise risen in line with inflation.
Tax revenue data only dates back to 1948. Analysis of all revenues, however, goes back further and shows that only during and immediately after both world wars have government revenues grown by as much as they have since 2019.
COVID and manifesto pledges ratchet up tax
The IFS added: “To some extent, this ought not to be a surprise: the COVID-19 pandemic represented the most significant economic dislocation since the Second World War. But while the response to the pandemic and its after-effects does explain some of the tax rises announced in recent years, it is far from the only – or even the most significant – explanation.
“Instead, tax rises have largely been the consequence of a desire for higher government spending on things that pre-date the pandemic such as manifesto promises to expand the NHS workforce and hire more police officers, and a September 2019 declaration to be ‘turning the page on austerity’.”
When compared with other developed countries, however, the level of overall taxation in the UK is considered average.
Furthermore, there were no meaningful increases in taxes between the financial crisis and the start of the pandemic.
Between 2008 and 2019, according to OECD data, UK tax revenues increased by 0.2% of national income compared with an average increase of 1.2% across all developed economies.