Tax burden set to rise, IFS report suggests

A report by the Institute for Fiscal Studies (IFS) has warned that tax is expected to rise as a share of the UK’s income, to its highest level in 30 years.

IFS claimed that higher income from taxes and a relatively low growth will combine to accelerate spending cuts and increase the tax burden.

The report outlined that after almost seven years of tax rises and spending cuts: the deficit this year will be higher than in all but 13 of the 60 years before 2008, and remains
the fourth highest of 28 advanced economies; the national debt is at its highest level as a fraction of national income since 1965–66 and is higher than that faced by all but five other advanced economies; and real spending on public services has fallen by 10 per cent since 2009–10 – by far the longest and biggest fall in public service spending on record.

Andrew Goodwin, Lead UK Economist at Oxford Economics and co-author of a chapter in the Green Budget, said: “Though the UK economy has continued to achieve solid growth, it has been almost entirely reliant on the consumer. With spending power set to come under significant pressure from higher inflation and the welfare squeeze, the consumer will not be able to keep contributing more than its fair share. Exports should be a bright spot, but overall a slowdown in GDP growth appears likely.”

If the Government is able to agree a transitional arrangement with the EU and make progress on a free-trade agreement then the impact of Brexit is likely to be fairly modest within our forecast horizon of 2021. However, the negative effects of leaving the single market and the customs union are likely to become clearer over time and we estimate that the new trading arrangements could reduce UK GDP by around three per cent by 2030, compared with remaining in the EU. Should we fail to secure a free-trade agreement then the outcome is likely to be worse still.”

In a statement, the Treasury commented: "The government is committed to repairing the public finances and living within our means so that we can build an economy that works for all.

"That has required some difficult decisions on spending, but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers' money."