Janice R. Andrews
Since 2019, the UK’s tax income has grown at an unprecedented rate, exceeding that of other major economies, according to recent research from the Institute of Fiscal Studies (IFS).
The UK has historically underperformed its peers in terms of tax revenue as a share of GDP. But the pandemic caused the tax burden to rise quickly, greatly closing the difference.
The study’s main conclusions show that, compared to other advanced countries, the UK’s tax collection decreased by about 5% between 2001 and 2019. However, this gap has noticeably decreased after 2019. According to projections, the difference will further lessen to 2.8 percent of the national revenue by 2029.
The study compares the UK’s fiscal trajectory with that of 36 other wealthy countries throughout the world, using the most recent predictions from the International Monetary Fund as a basis.
The imposition of a windfall tax on oil and gas corporations, together with a significant increase in corporate tax from 19 to 25 percent, were major factors in the tax increase. Fiscal drag is the term used to describe how more people are moving into higher tax categories as a result of inflation since the personal tax levels have been frozen since April 2021.
The Conservatives recently announced cuts to national insurance, but the respite has been largely compensated by fiscal strain. Jeremy Hunt, the chancellor, has expressed a want for additional tax reductions in the fall, depending on the situation.
However, by 2028–2029, the Office for Budget Responsibility (OBR) projects that the tax burden will amount to 37.1% of GDP, a four percentage point rise from pre–pandemic levels.
Tax revenues have increased, but so has government spending, albeit more quickly. The IFS highlights a discrepancy between the desire for higher government spending and the resistance to enacting the necessary tax increases.
In addition, the post-pandemic slow economic recovery has made fiscal issues worse by reducing government revenue. The UK is expected to perform the eighth poorest out of its peers between 2019 and 2029, mostly as a result of muted economic growth that is stifling tax revenue.
In light of these changes, research economist Martin Mikloš of the IFS emphasizes how the UK has evolved toward a fiscal environment more like that of other developed nations, which is marked by a larger state, more taxes, and increasing debt.
