Brace yourselves: Taxes are heading for a record high - and theres every chance that they will be going up even higher
Britains tax burden will soon soar to a post-war high – and huge uncertainty over the economy will add to fears that it could climb higher still.
Britains tax burden will soon soar to a post-war high – and huge uncertainty over the economy will add to fears that it could climb higher still.
The Office for Budget Responsibility (OBR) predicted today that the tax take will climb to 37.7 per cent of gross domestic product (GDP) in 2027-28.
But experts believe Rachel Reeves will stage a fresh tax raid in the autumn, given the OBR’s high level of uncertainty about its economic forecasts.
The OBR gives the likelihood that the Chancellor will be able to balance the books as she plans a probability of little more than 50/50 – meaning there is a huge risk that she will need to change her plans with more tax rises or spending cuts.
And tonight she refused to rule out more tax increases, saying she was ‘not going to write four years’ worth of Budgets’.
The OBR’s latest forecast predicted that the tax take will climb above £1trillion this financial year, reaching £1.2trillion in three years, or 37.7 per cent of GDP – up from a pre-pandemic level of 33.2 per cent.
It will spiral further to £1.3trillion by 2029-30, more than £300billion higher than in the current financial year, according to the forecast.
A freeze on income tax thresholds means that millions of people are being dragged into having to pay taxes at higher rates.
Experts believe Chancellor Rachel Reeves will stage a fresh tax raid in the autumn, given the OBR’s high level of uncertainty about its economic forecasts
The Bank of England (file image). The OBR gives the likelihood that the Chancellor will be able to balance the books as she plans a probability of little more than 50/50
The Chancellor has left herself just £9.9billion of ‘headroom’ to meet her target of balancing the books so that day-to-day spending can be matched by tax receipts.
The OBR said it was a ‘very small margin compared to the risks and uncertainty inherent in any fiscal forecast’.
It also pointed to major risks to the outlook for the public finances, including weaker growth, Government borrowing costs and the intensifying global trade war.
At the same time, Government departments will face a major squeeze under current plans, while the scale of savings to be achieved by a reform of welfare remains uncertain.
Sanjay Raja, UK economist at Deutsche Bank, said the Chancellor’s buffer against meeting her fiscal rule remained ‘wafer thin’ and that ‘modest tax hikes’ were ‘inevitable by year-end’.
Jason Hollands, managing director of the wealth manager Evelyn Partners, said frozen tax thresholds were ‘putting everyone in a slowly tightening financial thumbscrew’.
He added: ‘Ahead of today’s statement, the Chancellor had sought to quell speculation of further tax rises, which we have previously argued were very unlikely given the mood music, and when most of her previous measures have yet to come into force.
‘But the absence of further tax measures today should provide only limited comfort as the tax burden is only going to ratchet up.
The OBR forecasts for 2026 and beyond provide some comfort, but like most economic forecasts they could have the habit of being wrong.
If the picture continues to disappoint by autumn, all bets are off as to whether she will double down on tax hikes or take the scalpel again to public spending.’