Are tax bills set to rise?
Posted by siteadmin on Friday 3rd of March 2017.
A recent report from the Institute for Fiscal Studies (IFS) suggests that the amount of tax paid in the UK is set to rise to levels not seen for thirty years.
Plans by the Chancellor, Philip Hammond, to increase tax rates and reduce public spending in order to fill the £34 billion hole in the budget, will mean that over 37% of the UK’s national income will come from tax receipts, a figure not seen since 1987.
According to the IFS, the Chancellor’s decision to scrap the plans of his predecessor, George Osborne, to balance the country’s books by 2020 means that austerity measures are likely to continue beyond Hammond’s self-imposed new target of the end of the next parliament. Whilst the report estimates that the UK economy will see growth of 1.6% this year, this will slow to 1.3% in 2018.
The weaker pound following the Brexit result last year will help performance in the export and manufacturing sectors, but this will be counteracted by higher costs for consumers. The report also forecasts that the UK economy will be 3% smaller in 2030 than it would have been had Britain remained in the EU.
The report also looks at the impact upon public services, with real spending on this area having fallen by 10% since the 2009-10 financial year. The NHS has been hit particularly hard in recent years: in the five year period between 2009-10 and 2014-15, health spending has seen the slowest rate of growth since the 1950s, which probably explains the rise in demand for hospital trolleys.
Despite cuts in these and other areas, the Chancellor is relying most heavily on revenues from income tax to reduce the deficit. An increase of 24% in income tax receipts is being sought by the government from now until 2021-22. Half of these will come from an additional 140,000 people paying the top rate of tax on their earnings, despite the government’s promise to raise the threshold for the higher rate to £50,000 by 2020. So if you are a high rate tax payer or close to that level you should not lose sight of the benefits of minimising your tax by taking advantage of tax efficient holdings such as ISAs, Pension funds and Junior ISAs for your children.