The UK is currently experiencing its highest tax burden since the Second World War, according to new data from the Organisation for Economic Co-operation and Development (OECD) 1.. This development poses significant implications for businesses and individuals across the country.
Record-High Tax-to-GDP Ratio
The OECD’s annual revenues statistics update revealed that the UK’s tax-to-GDP ratio reached 35.3% for the 2022/23 financial year, a record high since the OECD began keeping records in 2000. This marks a 0.9 percentage point increase from the previous year. The rise in the tax burden is anticipated to continue, with projections suggesting an increase to 37.7% by 2029, despite recent tax cuts, including a 2% reduction in national insurance.
Impact of Government Policy
The primary cause of this increased tax burden is attributed to the government’s decision to freeze tax rate thresholds, not adjusting them in line with inflation and wage growth. This has resulted in more individuals being pushed into higher tax brackets, effectively increasing their tax liabilities.
Property Taxes: A Major Concern
In addition to the general tax burden, the UK now has the highest level of property taxes in the developed world. The ratio of property taxes to GDP stands at 4%, compared with the European Union average of 1.5% and the G7 average of 2.9%. This includes council tax, business rates, SDLT (stamp duty land tax), and LBTT (land and building transaction tax) in Scotland. 2. The Office for Budget Responsibility forecasts further increases in property taxes, with significant rises in business rates and council tax receipts expected. 3.
Business Perspective
From a business standpoint, the high level of business rates is seen as a disincentive to invest. In the international context, the United Kingdom stands out for its notably high revenue generation from property taxes. This elevated tax burden, particularly the business rates tax, is seen as a deterrent to investment. With an anticipated effective tax rate of 54.6% on commercial properties in the coming year, this perception is unlikely to change.
Political Reactions
Labour has criticised the current tax situation, attributing it to “13 years of Conservative economic failure” and advocating for economic growth and a fairer tax system. In contrast, a Treasury spokesperson defends the UK’s tax system as competitive, with low corporation tax rates and generous capital allowances, while maintaining that the UK’s tax-to-GDP ratio is moderate compared to other G7 countries.
Looking Ahead
The rising tax burden in the UK is a complex issue with multifaceted implications for businesses and individuals. The high level of property taxes, in particular, raises concerns about its impact on investment and economic growth. As the situation evolves, it will be crucial for businesses and individuals to stay informed and adapt to the changing tax landscape.
For expert advice and guidance on navigating these tax changes for businesses and individuals contact Beavis Morgan. With a deep understanding of the tax system and its implications, we can provide the necessary support to manage these challenges effectively.
Get in touch with your usual Beavis Morgan Client Partner or email info@beavismorgan.com for personalised tax advice and solutions.
Source:
- OECD: Revenue statistics 2023 – United Kingdom
- New analysis from commercial real estate firm Altus Group
- OBR: Economic and fiscal outlook – November 2023