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The UK’s tax burden is set to rise to its highest level for 30 years – despite the longest and deepest cut in public service spending on record – according to the Institute for Fiscal Studies.
In November, chancellor Philip Hammond announced a new set of fiscal targets: to reduce public borrowing to below 2 per cent of national income by 2020-21 and to zero as soon as possible after the 2020 election.
To achieve this, the government plans to increase revenues to above 37 per cent of national income by 2021-22 – the highest level since 1986-87, when Margaret Thatcher was in office.
“Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise,” said Paul Johnson, IFS director. “Even so the chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament . . . that is going to require extending austerity towards the mid-2020s.”
The coalition and the current Conservative governments have announced tax changes that will increase revenues during this parliament. Together these are expected to bring in £17bn a year by 2019-20, the IFS said in their annual report previewing issues for the forthcoming Budget.
Some tax cuts have been announced, including raising the income tax personal allowance and higher rate threshold, freezing fuel duties, cutting corporation tax and introducing a new main home allowance for inheritance tax.
But these will be more than offset by tax increases, including higher tax on dividend income, an increase in tax on insurance premiums, higher vehicle excise duty, and a restriction on pension contributions for those on very high incomes.