Taxes at highest sustained level since 1940s, says IFS

Tax take in the UK is at its “highest sustained level” since the 1940s, according to a new report published by the IFS. 

The report revealed that tax revenue rose to £627.9bn in 2018-19, accounting for 34.4% of national income. This revenue is expected to see further growth in the next financial year, with a forecast of £757bn in 2019-2020, equivalent to £14,000 per adult.  

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Despite certain government giveaways, such as increasing the income tax personal allowance, freezing fuel duties, and cuts to headline rates of corporation tax, a rise in VAT and NICs largely accounts for this growth in revenue. Since 2010, policy reforms alone have increased tax revenue by almost £20bn.

Tax take in the UK still remained lower than much of Western Europe, says the IFS. UK taxes are instead near the average for developed economies. Other countries reportedly raised more in social security contributions, whilst the UK raised more than most in property tax. 

The report notes, however, that “many other European countries have a much stronger link between social security contributions and social security benefits than the UK does”.

Another notable conclusion was that the tax and benefit system “overall redistributes from higher-income to lower-income households” successfully. 

The report stated: “Before taxes and benefits the highest-income fifth of individuals have an average household income that is 12 times as high as the poorest fifth. 

“Adding all cash benefits and deducting the main direct personal taxes brings this figure down to five.” 

IFS concluded that the UK tax and benefit system is “progressive overall”, with indirect taxes remaining roughly proportionate across all household budgets. 

The report also revealed that the top 1% of the adult population pays over a third of all income tax. The sector in question has seen its income tax rise from 25% to 30% since 2010. 

Stuart Adam, senior research economist at the IFS, said : “Taxes in the UK are not high by international standards, but they are high by historical standards: almost 35% of national income, the highest sustained share since the 1940s.

“And our tax revenues are ever more reliant on a small group of high-income taxpayers. It is average earnings, rather than top earnings, that would be taxed markedly more if the UK adopted the tax system of a typical higher-tax country.”

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