Average UK Family Faces £3,500 Tax Hike

According to the Institute for Fiscal Studies (IFS), a respected economic research group, UK families are bracing for a tax increase that averages £3,500 annually by the time of the next election. This is slated to be the most significant tax rise during a government’s tenure in more than 70 years.

Understanding the Numbers

To put it simply:

  • In 2019, the taxes collected by the government made up about 33% of the nation’s total income.
  • By 2024, this is expected to grow to roughly 37%.
  • This growth translates to the government collecting an extra £100bn every year. For each household, it’s like paying an additional £3,500 in taxes, although the exact amount will differ for everyone.

Why the Increase?

You might be wondering, “Why such a rise?” The IFS points out several decisions made recently, like:

  • Bumping up the main corporation tax rate from 19% to 25%.
  • Introducing an energy profits tax.
  • Pausing the usual increases of some income tax and national insurance thresholds, so more people are getting caught in higher tax brackets.

The Political Drama

All these numbers and changes are causing a bit of a storm in political circles:

  • Chancellor Rishi Sunak, who made many of the tax decisions, is heading to the Tory party’s annual conference. He might face tough questions, especially as some party members are hoping for pre-election tax cuts.
  • But, with the government’s budget announcement just around the corner, big tax cuts seem unlikely without reducing public services.
  • Interestingly, before the last election in 2019, the Conservatives had warned that Labour would increase taxes. Now, under Keir Starmer, Labour is using these tax hikes to question the Tories’ ability to boost the economy.

The Wider Picture

The IFS isn’t the only group shining a light on financial inequalities. Another study, from the Resolution Foundation and innovation charity Nesta, reveals the wealth of the UK’s top 10% has grown a whopping 25 times faster than that of the poorest 30% from 2006 to 2020.

What Others Are Saying

Sarah Olney, representing the Liberal Democrats, didn’t mince words. She blamed the Tories for the economic situation and pointed out they once promised not to raise taxes.

However, a spokesperson for the Treasury responded, emphasizing that the UK still has a lower tax to income ratio than many European nations. They also highlighted the importance of reducing inflation and mentioned the challenges faced after the Covid pandemic and Russia’s actions in Ukraine.

Final Thoughts

The bottom line from the IFS? Despite any potential tax cuts, this period will go down in history as one of significant tax increases. These hikes aren’t just because of the pandemic but are a result of choices to boost government spending, especially for healthcare and reversing some austerity measures.

This likely indicates a long-term shift towards the UK becoming a higher-tax economy.