The government will raise upwards of £100bn more in tax revenues next year, equivalent to around £3,500 more per household
This has been the biggest tax-raising parliament since records began, pushing UK tax revenues to historically high levels, warned the Institute for Fiscal Studies (IFS). One of the most punitive tax measures has been freezing tax free thresholds for a total of six years until 2028, while businesses have been hit by a 6% hike in corporation tax to 25%, the highest rate for six years.
This means that the Conservative led government is raising more in tax revenue as a percentage of national income than at any time since the 1940s
At the time of the last general election, UK tax revenues amounted to around 33% of national income. By the time of the next election in 2024, on current forecasts, taxes will amount to around 37% of national income – a level not sustained in the post-war period.
Between 2019–20 and 2024–25, tax revenues are set to increase by 4.2% of national income under the latest official forecasts.
The IFS said: ‘Only during and in the immediate aftermath of the two world wars have government revenues grown by as much as they have in the period since 2019.
‘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”.’
Even if the Chancellor Jeremy Hunt announced tax cuts at the Autumn Statement in November, something that he has strenuously ruled out, the IFS warned that ‘it is beyond the realms of plausibility that any change announced in either the autumn or the spring will undo the tax increases over the parliament. Taxes at the end of this parliament will be considerably higher than at the beginning’.
Hunt argues that inflation reduction is the only way to reduce taxes, but the rate is still well above the government’s target of 5% by the end of year, and is likely to be hit by soaring oil prices, which are near to a year high of $100 a barrel. The impact on UK drivers is exacerbated by the sharp fall in the pound against sterling in recent weeks.