Sometimes, the headline from a think tank report can be so cryptic you have to call up the press office to ask what exactly they meant by it. But not this one. The Institute for Fiscal Studies (IFS) has published a paper titled: This will be the biggest tax-raising parliament on record. And this being the IFS, they have the data to back it up.
In 2019, UK tax revenues equated to roughly 33 per cent of national income. By next year, on present forecasts, taxes will amount to around 37 per cent, a level not seen since the 1940s, when the British state was, erm, rather busy.
At first glance, this may seem odd. First, because the Conservative Party spends an inordinate amount of time talking about cutting taxes, most recently inheritance tax. Second, in the 1970s, the top rate of income tax was 83 per cent, whereas today it is 45 per cent.
So, this has less to do with tax rates than the number of people paying them. In 1991-2, 3.5 per cent of UK adults paid the 40 per cent higher rate of income tax. By 2022-23, that rose to 11 per cent. In 2027-28, it is set to climb to 14 per cent.
Put another way, while in the 1990s basically no nurses and only about 5 per cent of teachers paid higher rate tax, the persistent freezing of tax thresholds means that by 2027-28, more than one in eight nurses and an extraordinary one in four teachers will be higher-rate taxpayers.
According to an IFS report from earlier this year, these cumulative freezes (aka stealth taxes – though I don’t know why because everyone notices) represent the “single most significant tax increase since Geoffrey Howe increased VAT to 15 per cent [from 8 per cent] in 1979.”
But it’s more than thresholds. There’s the rise in corporation tax from 19 per cent to 25 per cent and the Energy Profits Levy. Although, somewhat hilariously (if only to me), even in a time of ever-rising taxes, the fuel duty freeze, my personal bête noire, endures.
This a problem for the government for a few reasons. First, in the immediate term, Rishi Sunak is heading to Manchester for Conservative Party Conference. Headlines such as “biggest tax-raiser ever” are sub-optimal. Second, with a record 7.6 million people awaiting NHS treatment in England (that is roughly one in eight people) it is not as if voters feel they are getting an especially high level of public services for their taxes.
Third, everything from demographic change (you are getting older) to the end of the post-Cold War peace dividend suggests the state will have to do more, not less, in the future. Consequently, taxes will continue to rise no matter who wins the next election.
A little international comparison is probably useful at this point. While the UK tax burden is definitely rising, that is not to say it is an outlier compared with other high-income countries. Indeed, according to the Office for Budget Responsibility, in 2021 – the most recent year for which there is internationally comparable data – the UK’s tax-to-GDP ratio was 2.2 per cent below the average of other advanced economies and 6.4 per cent of GDP below the average of 14 other western European countries.
Ben Zarenko, an economist at the IFS, sums it up thus. While the level of taxation in the UK is pretty average by international standards:
“Where the UK does stand out is the extent to which we kept taxes relatively flat between the financial crisis and Covid, in the face of demographic change and weak growth. Now, we’re playing catch-up.”
In the comment pages, Tracey Emin has an incredibly moving piece on the abortion she never wanted to have, but found herself in a “case of survival, self-preservation.” While Tomiwa Owolade says it’s class, not race, that’s the real divide in Britain.
And finally, Ian Fleming was a spy too: Bond was his bid to relive his youth. Start your weekend with Ethan Croft’s delightful review of Nicholas Shakespeare’s new biography, Ian Fleming: The Complete Man.
Have a good one.
