Britain’s Tax Burden on Course to Hit Highest Level Since Second World War

Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street in London, on March 15, 2023. Stefan Rousseau/PA Wire

The UK’s tax burden is on course to be the highest since the Second World War, the government’s official economic forecaster has said.

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

The OBR’s document, released on Wednesday to coincide with Chancellor Jeremy Hunt’s Spring Budget, said, “The tax burden now rises to 37.7 percent of GDP 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).”

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.”

A sign is seen engraved on the Treasury building in London, on March 1, 2021. Toby Melville/Reuters

Corporation Tax Hike

Announcing the budget in the House of Commons on Wednesday, the chancellor stressed that the overall tax burden will be “slightly lower” for the rest of this Parliament compared to the OBR’s autumn forecast.

“Other parties run out of money, but a Conservative government is reducing borrowing and improving our public finances,” he said.

But Hunt resisted demands from Tory MPs, including former Prime Minister Boris Johnson, to scrap April’s increase in corporation tax.

He confirmed that the main rate of corporation tax will rise from 19 to 25 percent in April, taking it back to levels last seen in the early 2010s.

Corporation tax receipts are forecast to reach the equivalent of 3.7 percent of GDP by 2027/28, their highest level since the tax was introduced by Labour Chancellor of the Exchequer Jim Callaghan in 1965.

The move means the overall tax burden will continue to rise and hit a post-war high in four years’ time.

Rising Public Sector Debt

The headline measure of public sector net debt in the UK, which includes the Bank of England, is forecast to reach the equivalent of 103.1 percent of GDP in the financial year ending March 2024.

This would be the highest level since the end of the financial year 1960/61, when debt stood at 107.5 percent.

The OBR forecast found that the chancellor had given himself only a £6.5 billion buffer in order to meet his fiscal rule of having debt falling as a proportion of the size of the economy in five years’ time.

OBR Chairman Richard Hughes said on Thursday that the political likelihood of fuel duty remaining frozen in the next budget and Prime Minister Rishi Sunak’s ambition to spend 2.5 percent of GDP on defence could blow a hole in the chancellor’s debt target.

“There is a list of things that aren’t in our forecast which could easily wipe that headroom out tomorrow,” he said at a post-budget briefing organised by the Resolution Foundation think tank.

“If you combine fuel duty, his aspirations on where he wants the tax regime on businesses to go, and also the aspirations announced earlier on this week about defence spending—and getting it to 2.5 percent of GDP—when you combine those things, that busts his rules by a country mile.”

Downing Street said the prime minister remains “committed” to meeting the debt-cutting target and indicated the fuel duty escalator could continue to be accounted for in the headroom figures.

Sunak’s official spokesman said, “The government’s position has not changed and we will make a decision on what is in the best interest of the UK in the future, but I can’t comment on what decisions we may take.”

‘Sick Man of Europe’

Commenting on the budget on Wednesday, Labour leader Sir Keir Starmer said years of Tory-led governments have led to a “doom loop of lower growth, higher taxes, and broken public services” and put the country on a “path of managed decline.”

Starmer added: “After 13 years of his government, our economy needed major surgery, but like millions across our country, this budget leaves us stuck in the waiting room with only a sticking plaster to hand.

“A country set on a path of managed decline, falling behind our competitors, the sick man of Europe once again.”

He said the OBR forecast has made clear “things don’t look any better in the long run.”

The opposition leader added that it was “ridiculous” that the chancellor “boasts” about lower inflation.

He said: “The idea that it’s a tax cut, British people can see through that. They see their tax burden at its highest level for 70 years and they know it’s not the government that’s lowering inflation, it’s working people, earning less, enjoying less, it’s their sacrifice that is helping to bring inflation down.

“And they deserve better than another cheap trick from the government of gimmicks, making them pay whilst trying to claim the credit.”

PA Media contributed to this report.