Biggest tax bill in history – and they won’t rule out more rises
BRITAIN’S tax burden will reach its highest sustained level in history after Boris Johnson’s £36billion tax grab, economists said last night.
The Prime Minister yesterday announced tax rises worth £12billion a year – or £36billion over three years – hitting middle earners, the higher paid and business.
These come on top of income and corporation taxes announced in the March budget, which will bring in around £25billion a year.
According to the TaxPayers’ Alliance, it means the overall tax burden will reach the equivalent of more than 35 per cent of Gross Domestic Product (GDP), its highest ever sustained level. It has only ever been higher during very short term fluctuations in financial policy.
And last night, Boris Johnson refused to rule out further tax rises before the next general election.
Asked to rule them out before the end of this parliament in 2024, he merely said: ‘I certainly don’t want any more tax rises. If you want me to give that emotional commitment, of course that’s the case.’
The Institute for Fiscal Studies said yesterday’s 1.25 per cent rise in national insurance for 25million people, together with other tax rises already announced, would take the tax burden to its highest ever sustained level.
It might have been higher in 1969 and it was higher in the late 1940s. But apart from these shortterm fluctuations, it is the highest on record.
The IFS also said that yesterday’s announcements meant government spending would come out of the Covid crisis at 42.4 per cent of national income – higher than before the pandemic and a record level in peacetime.
Isabel Stockton, a research economist at the IFS, said: ‘Following just six months after the March budget, itself the biggest tax-raising budget since Norman
Lamont’s 1993 spring budget, today’s announcements push taxes to their highest-ever sustained share of the economy.
‘equivalently, government spending is set to reach a record peacetime level.
‘Long-term challenges around rising costs of health and social care means this increase in the size of the state is likely here to stay.’
Ministers insisted the 1.25 per cent rise in national insurance – which will be dubbed a ‘health and social care levy’ – was much fairer than other tax rises because it falls on business as well as individuals.
To raise the equivalent amount in income tax would require an increase in individuals’ tax of 2 per cent.
A typical basic rate taxpayer earning £24,100 will contribute £180 in extra NI in 2022/23, while a typical higher rate taxpayer earning £67,100 will contribute £715. For the first time, the NI will be charged on people working over the state pension age of 66.
But Tom Waters, a senior research economist at IFS, said that the changes continued a long-term trend of moving taxation from pensioners towards those in work. ‘The overwhelming majority of the tax rise will fall on working-age individuals, a consequence of using national insurance rather than income tax to raise the revenue,’ he said.
‘This is the latest in a long line of reforms which have tilted the burden of taxation towards the earnings of working-age people and away from the incomes of pensioners.’
John O’Connell, chief executive of the TaxPayers’ Alliance, said low-paid workers and struggling employers will be hit hard – ‘laying the groundwork for more demands for cash’.
Sarah Coles, personal finance analyst at hargreaves Lansdown, said further tax hikes could be on the horizon.
‘We knew the government was going to be hiking taxes to claw back as much money as possible after spending record peacetime sums propping up the economy during the pandemic, and this marks the first wave of bad news,’ she said.
‘This announcement clobbers workers and investors, and is unlikely to be the end of the bad news.
‘We don’t yet know what it has up its sleeve, but we do know the tax environment for savers and investors is unlikely to get more generous in the near future.’
helen Morrissey, senior pension and retirement analyst at hargreaves Lansdown, said: ‘The number of people who continue to work past state pension age has grown hugely in recent years with approximately 1.28million currently in work.
‘This reflects increasing longevity and the fact that many people continue to work because they want to. It makes sense that this group also contributes to this levy.’
‘Record peacetime spending’
‘Fall on working individuals’