UK tax burden set to keep rising over the next decade to its highest in 40 years by 2025


The Government’s fiscal watchdog expects tax to continue rising as a share of national income over the next decade, climbing to 37.5 per cent of GDP by 2025-26, which would represent its highest share since 1986, the Telegraph reports.

The Office for Budget Responsibility’s (OBR) latest evaluation of the economy showed the Chancellor was currently on course to miss a target of balancing the books in the next Parliament.

Its projections show £16.8bn will be needed to plug the gap between expenditure and revenues in 2021-22.

The OBR said meeting its objective of achieving a budget surplus beyond that “will be challenging”.

Analysis by the watchdog showed that if the deficit continued to fall at a gentle pace of 0.2 per cent of gross domestic product (GDP) per year after 2021-22, the Chancellor would post a surplus in 2025-26.

This would imply the tax burden rising by 0.3 per cent of GDP from 37.2 per cent at the start of the next parliament and austerity continuing in real terms in every year.

“There’s a chance we’ll end up with 15 years of spending cuts and tax rises to undo the damage done by the recession in 2008,” said Paul Johnson, director of the Institute for Fiscal Studies.

“My guess is there is more than a 50 per cent chance that we wont get to balance the books even by 2025. The scale of the spending cuts still required looks really very difficult.”

The OBR warned at the start of the year that an ageing population was likely to put a bigger strain on the state in the coming decades.

Economists said the country faced a tough choice of curbing benefits such as pensions, even more austerity, or accepting a “permanently higher tax burden”.

If the Government allows departmental spending to rise in line with expected demographic pressures beyond the next decade, Britain is expected to keep borrowing around £16bn in today’s terms through to 2025-26.

OBR calculation show this will “push the receipts-to-GDP ratio up by a further 0.6 per cent of GDP from the 37.2 per cent it reaches in 2021-22 and reduce average working-age welfare payments by a further 10 per cent relative to earnings”.

Thomas Pope, an economist at the IFS, warned that further day-to-day spending cuts would be difficult. “These areas have already been squeezed quite heavily, and would have been squeezed for a decade by the time we get to the next parliament,” he said.