Taxing times The fluctuating burden in the UK
The Office for Budget Responsibility said yesterday that with the planned increase in corporation tax to 25 per cent by 2023, HMRC’S tax revenue would reach 35 per cent of GDP by 2025-26 – the highest level since 1969.
The 1969 Budget, delivered by Roy Jenkins, was the culmination of almost a decade of tax rises, mostly under the Labour governments of Harold Wilson.
Wilson’s six years in office saw the introduction of capital gains tax and a new corporation tax of 40 per cent of profits from 1965. His governments steadily increased the proportion of revenue from direct taxes, like income tax, compared to indirect taxes like VAT and alcohol duty.
Wilson’s government also used the “supertax” of more than 90 per cent for the highest earners, inspiring the 1966 Beatles song Taxman.
In the song, the band complain of a 95 per cent tax rate, mimicking a tax officer telling them: “Should 5 per cent appear too small? Be thankful I don’t take it all.”
Another extra tax was the “selective employment tax”, designed to tax the service sector of the economy more heavily than manufacturing industries.
Throughout the Sixties, Labour ministries relied on the principles of Keynesian economics, which encouraged them to inflate government spending to stimulate aggregate demand in the economy and produce growth.
Edward Heath’s election as prime minister in 1970 saw the partial reversal of many of Labour’s tax policies of the previous six years, and a cut of the top rate of income tax from 90 per cent to 75 per cent.
Capital gains tax and corporation tax remained on the statute books but Health increased the proportion of the government’s tax revenue from indirect taxes like VAT.
The overall tax burden fell by around five percentage points to 30 per cent of GDP, before bouncing back during the recession of 1973-75.
The tax burden in the UK has risen steadily since 1990, but will now increase sharply.