Tax burden to be highest since ‘60s
THE UK tax burden will increase to its highest level for more than 50 years after Chancellor Rishi Sunak set out his plans to begin repairing the nation’s finances after the coronavirus crisis.
Mr Sunak used his Budget to extend the furlough scheme and Universal Credit increase as part of a £65 billion lifeline for the economy as it emerges from the coronavirus pandemic.
But taxes on business profits are set to be hiked from 2023, while income tax thresholds will be frozen meaning more people will be dragged into paying.
The Office for Budget Responsibility (OBR) said raising the headline corporation tax rate, freezing personal tax allowances and thresholds, and taking around £4 billion a year more off annual departmental spending plans would raise a total of £31.8 billion in 2025-26.
The measures announced in the Budget increase the tax burden from 34% to 35% of gross domestic product (GDP) – a measure of the size of the economy – in 2025-26, ‘its highest level since Roy Jenkins was chancellor in the late 1960s.’
Mr Sunak said the total package of measures – including those already announced – to support the economy amounted to £407 billion.
But he said the unprecedented spending could not continue and he had to be ‘honest’ about putting the nation’s finances back on a sustainable footing.
The point at which people begin paying income tax will increase by £70 to £12,570 in April, but will be maintained at that level until April 2026, meaning more people will be dragged into paying tax as wages increase.
The 40p rate threshold will increase by £270 to £50,270 and then be frozen.
Mr Sunak said ‘nobody’s take-home pay will be less than it is now, as a result of this policy,’ but he acknowledged it ‘does remove the incremental benefit created had thresholds continued to increase with inflation.’
Corporation tax will increase from 19% to 25% in 2023.
But a new ‘small profits rate’ will maintain the 19% rate for firms with profits of £50,000 and there will be a taper above £50,000 so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate – around 10% of firms.
There will be a ‘super deduction’ for companies when they invest, reducing their tax bill by 130% of the cost.
While economists have largely agreed that immediate measures to repair the nation’s finances are not needed while the impact of the coronavirus crisis is still being felt, the need for medium-term action was underlined by the OBR forecasts.
Mr Sunak said this year borrowing was £355 billion, 17% of national income – the highest level since the Second World War. Next year it is forecast to be £234 billion, 10.3% of GDP, ‘an amount so large it has only one rival in recent history – this year.’