£23 Billion Of Post-election Tax Rises Are Hiding In Plain Sight Amid Ongoing Tax Bombshell Rows

8th June 2024

While the main parties trade blows over possible secret tax bombshells, far bigger tax rises are hiding in plain sight, with £23 billion a year of post-election tax rises - equivalent to around £800 per household - having already been announced, and neither party committed to reversing them, according to new research published today (Saturday 8 June 2024) by the Resolution Foundation.

Hiding in plain sight - the latest Resolution Foundation election briefing, funded by the Nuffield Foundation - examines what has happened to the UK's tax take since 2010, what that has meant for the taxes paid by typical employees, and what might happen to tax in the next parliament.

The report notes that the UK's tax take as a share of the economy was stable during the 2010s, but grew considerably over the last parliament (2019-20 to 2024-25). The 3.3 percentage point increase in the tax to GDP ratio over this period was the biggest rise in the tax take of any post-war parliament, taking it to the highest level since 1949, at 36.5 per cent. This represents a £90 billion rise in taxes (or £3,000 a year per household).

However, while the UK's tax take is at an historic high, the report notes that personal tax rates paid by many employees are falling due to recent cuts in employee National Insurance. The marginal tax rate for most employees has fallen from 31 per cent in 2010 to 28 per cent today, while the effective tax rate for a typical employee is at its lowest level since at least 1975.

Instead, tax rises have been concentrated in higher corporate tax revenue (which has risen by 1.4 percentage points of GDP, driven by both higher corporate tax rates and high profits for tax-rich industries) and among higher earners. The share of taxpayers paying a higher marginal rate (40 per cent or more) has risen from one-in-ten in 2010, to one-in-six in 2023, equivalent to three million more people.

Looking ahead to what could happen to tax in the next parliament, the report notes that there are material, but relatively small, differences between the two main parties so far. Both parties claim they can clamp down further on tax avoidance, bringing in an extra £6 billion a year.

On top of that, Labour have announced more specific tax changes that would raise around £4 billion, while the Conservatives have to date announced a pensioner tax cut worth £2 billion (plus Child Benefit reform).

And while both parties are busy making claims and counter claims over secret tax bombshells, the report notes that they both remain silent on planned post-election tax rises that are hiding in plain sight, as they were already announced in the last parliament (particularly in Autumn Statement 2022 and Budget 2024).

The biggest single tax rise coming in the next parliament is the continuation of the six-year freeze to Income Tax and personal National Insurance thresholds, which will raise a further £9 billion a year by 2028-29; with an employer National Insurance threshold freeze raising a further £2 billion.

Spring 2025 will also bring the scheduled end of temporary major cuts to Business Rates, Fuel Duty and Stamp Duty Land Tax. Altogether, planned tax rises will raise £23 billion a year by 2028-29 - equivalent to around £800 a year for every household in Britain.

History also suggests that tax rises come after elections. Following the past eight elections, the first two fiscal events of each parliament have introduced new tax policies that have raised taxes by an average of £21 billion a year.

However, the Foundation notes that the backdrop of big tax rises in the last parliament, £23 billion of post-election tax rises already announced, and both main parties explicitly committing to not raising the key taxes, could narrow the room for manoeuvre when it comes to announcing any further tax rises.

Adam Corlett, Principal Economist at the Resolution Foundation, said "Secret tax bombshells are the bread and butter of any UK election campaign, and the current one is no different. What's unusual is that £23 billion of post-election tax rises - amounting to £800 a year per household, on average – have already been announced. No major party has committed to reversing them, apart from a small income tax pledge for pensioners.

"History tells us that tax rises often come after general elections – and it is already very clear that there is enormous strain on public services – though this will be made harder if the parties continue to box themselves in on tax changes.

"Politicians should level with the public, and admit that taxes are already set to rise whoever wins the election, even if it's less entertaining than the usual election fodder of secret bombshells and debatable dossiers."

In this briefing note – part of a programme of outputs supported by the Nuffield Foundation to put the upcoming UK general election in context – we consider some of the key tax questions for the 2024 general election and beyond. Has the government raised people's taxes or lowered them? How different are the parties’ implied tax plans? And what is likely to happen in the next parliament?

Key findings
The 3.3 percentage point rise in the tax-to-GDP ratio between 2019-20 and 2024-25 is the largest increase of any post-war Parliament, and takes it to its highest level since 1949, at 36.5 per cent. The rise is equivalent to over £90 billion of additional taxes – or over £3,000 per household – in 2024-25. But it still leaves the UK’s tax-to-GDP ratio below that of almost all western and northern European countries.

Despite the aggregate tax take rise, it is not the case that everyone’s taxes are up. Thanks to the Income Tax personal allowance increases of the 2010s and the most recent Parliament’s big National Insurance cuts, personal taxes are now historically low in many ways. If effective tax rates had remained at their 2010 level, the typical employee in 2024 would be paying £1,600 more Income Tax and National Insurance. But those on higher incomes have tended to see a rise in effective tax rates over the past fifteen years.

Although some material differences in tax policies have emerged during the general election campaign, these are smaller than the set of tax rises for the next parliament that have already been announced by the Government. These will amount to a net tax rise of around £23 billion a year by 2028-29 – or around £800 per household on average.

There are also grounds to expect even more tax rises in the next parliament. First, today’s particular fiscal circumstances look extremely challenging for a range of reasons, not least that spending on public services would need to be £19 billion a year higher than has been pencilled in if further cuts to unprotected departments are to be avoided. Second, history tells us that taxes rise after elections.

On average over the past eight general elections, the first two fiscal events of each parliament have featured new policies that have raised taxes by a net £21 billion.

However, the backdrop of big tax rises in the last parliament, £23 billion of post-election tax rises already announced, and both main parties explicitly committing to not raising the key taxes, could narrow the room for manoeuvre when it comes to announcing any further tax rises.

Read the full report HERE
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