UK facing permanent higher taxes

Tax levels in the UK are at their highest since records began 70 years ago – and are unlikely to come down, a leading think tank says.

The Institute for Fiscal Studies (IFS) forecasts taxes will amount to about 37% of national income by the next general election, due in 2024.

The IFS report – on the eve of the Conservative conference – has reignited calls for tax cuts from Tory MPs.

The government says taming price rises is its priority.

Next year, the government will collect upwards of £100bn more in tax compared to pre-2019 levels, the IFS says.

This is not a direct consequence of the coronavirus pandemic, when government spending surged to keep the economy afloat, the think tank argues.

Instead, it reflects decisions to increase government spending, the UK’s ageing population and pressures on the health service.

In recent years, the government has announced a series of tax-raising measures, including an increase in corporation tax from 19% to 25%, and the levy on profits made by energy companies.

IFS director Paul Johnson said: “Over this parliament, it looks like taxes will rise by about 4% of national income, that’s round about £100bn.”

He added the UK tax take is still about the average for rich countries and below the rest of Europe.

“If you look into the future, we are going to be spending more on pensions and health and so on as the population ages,” Mr Johnson said.

“In my view, this is almost certainly a permanent increase in taxes.”

Chancellor Jeremy Hunt – who will set out his economic plans in his Autumn Statement in November – said last week that tax cuts were “virtually impossible” at present.

A Treasury spokesperson said the “most effective tax cut we can deliver” is to “drive down inflation”.

But supporters of former Prime Minister Liz Truss and other Tory MPs have renewed their calls for tax cuts to promote economic growth.

Ms Truss told the BBC: “This unprecedentedly high tax burden is one of the reasons that the British economy is stagnating.”

Another Conservative MP, John Redwood, said there were “affordable tax cuts to be had”, including raising the VAT threshold for businesses and slashing duties on fuel.

Labour has ruled out unfunded tax cuts – or spending commitments – if it wins power at next year’s general election.

Commenting on the IFS report, leader Sir Keir Starmer said: “There’s a driving reason why we’ve got the highest taxes pretty well on record and that’s because of the dismal failure of this government on growth.”

The Liberal Democrats said the Conservatives had “crashed the economy” under Ms Truss and are “making the public pay the price”.

In an interview with the BBC on Thursday, Mr Sunak said he thought halving inflation by the end of this year was the “most important” of the five pledges he made in January.

Inflation – the rate at which prices are rising – was 10.7% in the three-month period between October and December 2022, which means the government aims to reduce inflation to 5.3%.

In August the inflation rate was 6.7%.

“Inflation is falling, there’s light at the end of the tunnel, but we need to stick to the plan,” Mr Sunak said.

— Reports /TrainViral/