UK’S TAX BURDEN SET TO HIT POST-WAR HIGH

THE UK is “charting new ground” as its tax burden is on course to hit the highest level since the Second World War.

The tax burden is expected to reach a post-war high of 37.7% of GDP in 2027-28, according to the Office for Budget Responsibility (OBR).

The OBR said this includes the highest ratio of corporation tax receipts to GDP since the tax was introduced in 1965.

Helen Miller, head of tax and deputy director at the Institute for Fiscal Studies (IFS), said: “While this was not a tax-rising budget, previous policies mean that tax revenues continue to rise to their highest ever level.

“This is charting new ground for the UK, but is not unusual internationally.”

The OBR’s document, released to coincide with Wednesday’s Budget, said: “The tax burden now rises to 37.7% of GDP (gross domestic product, or the total value of the economy) in 2027-28, which would be a post-war high and is 4.7 percentage points above where it stood before the pandemic (in 2019-20).”

The forecast reflects both pre-existing trends and subsequent changes, the OBR said.

It highlighted stronger receipts from income tax and national insurance contributions, VAT, corporation tax, and capital gains tax, partly reflecting stronger-thanexpected growth in wages and nominal consumer spending.

Ongoing freezes to income tax thresholds generate fiscal drag – where earnings growth pushes people into paying more tax.

While the UK tax burden is high by historical standards, it has remained below averages across other advanced economies, the OBR said, adding there is considerable variation across countries.

In the mid-1960s, the UK’s tax burden was relatively high, due in part to the need to finance the UK’s larger stock of debt left by the Second World War. From 2005 to 2020, the UK tax burden remained relatively stable.