Brace for the highest peacetime tax burden.


According to a new report, the UK’s tax burden is set to rise to its highest peacetime level.


The influential Treasury Committee of MPs has reported that the UK’s tax burden will rise to record peacetime levels after the Covid-19 pandemic.


The conclusion was featured in an analysis of the Autumn Budget and Spending Review and was unanimously agreed by the cross-party Committee of MPs.


Announcing the Budget in October, Chancellor Rishi Sunak said:


“Taxes are rising to their highest level as a percentage of GDP since the 1950s. I don’t like it, but I cannot apologise for it — it’s the result of the unprecedented crisis we faced and the extraordinary action we took in response.”


However, the Treasury Committee described how the Chancellor could cut taxes while sticking to his fiscal rules.


To do so, Sunak would have to identify government departments where real terms spending could be cut, despite growing demand.


The Committee criticised a lack of spending on education. The Department for Education failed to receive a significant budget increase, unlike the Department of Health and Social Care and the Department for Transport, which were also severely affected by the pandemic.


They reported that school funding per head is now at 2010 levels due to the latest Budget and Spending Review.


Despite raising taxes and holding back on government spending, Sunak only has a 55% to 60% chance of meeting his fiscal rules, according to the independent Office for Budget Responsibility (OBR).


The report also said that the Chancellor had only a small amount of headroom compared to previous forecast errors, which could be used up through typical changes to the forecast outlook.


On price inflation, the report concluded that the OBR’s central inflation forecast could be too low, as inflation has already increased by more than the expected level since the Budget in October.


Following a decision by the Bank of England to hike interest rates in December, the report said:


“It is therefore likely that by the next economic forecast, the chancellor may be faced with significantly higher interest costs than those included within the October economic forecast.”

Print | Sitemap
© Asset & Investment Management Ltd 2022