The amount of money the taxman takes away from Brits has climbed 30 per cent over the last five years, City A.M. analysis of official figures shows.
In the year to 31 October this year, HMRC collected £757bn in taxes, up from £584bn in 2015/16, stats out this week reveal.
The rise in tax revenues has been driven by the government needing to generate more cash to pay for a steady increase in public spending, mainly on health to deal with an ageing society and to cushion the economic blow from the Covid-19 crisis with packages such as the furlough scheme.
Tax thresholds have also been frozen, pushing people into higher tax bands due to inflation bumping their pay, a process known as fiscal drag.
But, taxes are on course to rise even further after chancellor Jeremy Hunt’s autumn statement last week delivered a combined £55bn of financial tightening.
The Office for Budget Responsibility (OBR) estimates the tax burden is on track to swell to its heaviest level since the second world war. Total government national account tax revenues will top £1 trillion in three years.
The Bank of England has warned the UK will suffer the longest recession on record at two years, if interest rates top five per cent, knocking nearly three per cent off of GDP.
Typically, when economies enter a slump, policymakers slash taxes and borrowing costs.
However, a 41 year-high inflation surge of 11.1 per cent and Liz Truss’s disastrous mini-budget has forced the treasury and Bank into squeezing households and businesses, possibly making the recession worse. Cutting taxes in an inflationary environment can embed high prices into an economy for years.
Businesses have been hit by a £6bn national insurance tax grab and a looming corporation tax hike, prompting analysts to warn the UK could suffer even more years of under investment that will hold back its economy.
“Maintaining UK tax competitiveness will now be more important than ever… If the UK were able to stimulate business investment back to pre-pandemic levels, it would generate an estimated £11bn to the economy,” Jon Richardson, head of tax policy, PwC, told City A.M.
Others said slimming down the tax regime would reduce waste.
“The sad reality is that the tax system lacks coherence. New taxes and reliefs are overlaid on existing measures, with complex rules bolted on to prevent avoidance. The result is a system of such dizzying complexity it’s hardly surprising that so many businesses and individuals get it wrong,” Paul Falvey, tax partner at BDO, told City A.M.
Income tax, VAT and national insurance raise most of HMRC’s money
By far the biggest revenue raiser for the taxman is income tax, which last year generated 31 per cent of receipts at £235bn.
Second is national insurance, paid by workers and employers, yielding 23 per cent of revenue at £172bn. Last week, Hunt froze the threshold at which employers begin paying the tax at around £9,000, raising £6bn in five years.
VAT follows at £157bn. Corporation tax filled 10 per cent of the taxman’s coffers, generating £73bn in the year to October.
The treasury and HMRC have been contacted for comment.