UK Tax Levels Reach 30-Year High As Proportion Of National Income

As a proportion of national income, the level of tax in the UK has reached the highest level for 30 years, a respected think tank has found.

The Institute for Fiscal Studies (IFS) has stated that taxes are set to rise by £17billion over the course of this parliament. This takes the proportion of national income raised in taxes to 37% – the highest level since 1986.

Despite the austerity and tax rises introduced by former Chancellor George Osbourne, tax rises and spending cuts are likely to continue well into 2020. The think tank blames this on the scrapping of the target to balance the budget by 2019.

In the IFS’s annual Green budget, they say that, because of the long period of transition to a free trade agreement with the EU, the economy is likely to be 3% less than it would otherwise have been if it had remained within the EU.

Forecasts by Oxford Economics put UK GDP growth at a “relatively disappointing” 1.6% in 2017 and 1.3% in 2018. This, they say, is largely due to higher inflation caused by the post-Brexit collapse of the pound.

Real-terms earnings growth could fall to just 0.2% in 2017 from 1.7% in 2016. The four-year tightening of benefit levels will become “more painful” as inflation rises.

While there is likely to be a boost in GDP from higher exports due to the weaker pound, this could be outweighed by its negative impact on consumer spending.

Public services spending has fallen by 10% since 2009/10 in real-terms, already by far the longest and biggest fall on record.

Additional cuts of 4% over the next three years will probably bring the total real-terms reduction to 13% from 2010/11 to 2019/20.

The Chancellor has set a renewed target level to eliminate the deficit during the next parliament, which ends in 2025.

In order to do this, the IFS found that he would probably need to find a further £34billion in tax hikes and spending cuts, which means that austerity would extend “well into the 2020s”.

But even with increases in public health spending over the period, 2019-20 will still fail to keep up with population growth and ageing.

The period from 2009/10 to 2014/15 saw the slowest growth rate in health spending since records began 60 years ago – and the pace is set to remain the same over the following five years.

Meanwhile, spending on adult social care has decreased by more than 6% since 2009/10 and “seems likely to continue falling”. This, when the elderly population has risen by nearly 16%.

Services such as justice, business, culture and environment are set to lose 40% of their budgets with spending on schools, defence, public order and safety lower in 2020/21 than before the 2008 financial crisis, as a share of national income.

Despite years of austerity, the UK’s total national debt remains at its highest level as a percentage of national income since 1965/66.

The annual deficit remains the fourth-highest of the world’s 28 most advanced economies.

According to the IFS, the Chancellor faces a “more than one-in-three chance” of missing his target of keeping the structural deficit below 2% of national income in 2020/21.

The IFS found that attempts to reduce spending on disability and incapacity benefits have delivered “much lower” savings than expected. Spending on incapacity benefits was £15billion in 2015/16, which was 45% higher than forecast.

Source: http://www.telegraph.co.uk/news/2017/02/07/uk-tax-burden-will-rise-highest-level-30-years-ifs-warns