Skip to content

UK Taxes Could Rise by £60 Billion, According to Think-Tank

The IFS think-tank has published a report suggesting that a major income tax rise could be needed in the UK, to cover the extra public spending that the current crisis has caused. They calculate that a possible total of £60 billion needs to be generated.

What They Reported

The report pointed out that an income tax increase of 6p or 7p in every £1 earned by British workers may be needed. This would be to pay for additional public spending over the next five to six years, and to avoid new austerity measures being imposed.

The think-tank also said that ministers should avoid making multi-year spending review plans, as the current levels of uncertainty over the economic situation make it impossible to do this. They recommend that chancellor Rishi Sunak concentrates on a one-year plan, and in working out the amount of money needed to deal with Covid from now on.

IFS revealed that the government´s spending increased by 20% from their original plans that were in place before the pandemic struck. In the business world, the increasing number of firms paying collection agency fees show the struggles that many companies are now facing at the same time.

The suggested increase in taxes would see the UK´s public spending rise from 39.8% of national income to 41% by 2025. This would mean an extra £60 billion or so being added to the public spending bill.

More Details on the Report

The think-tank found out that public sector borrowing has risen sharply in 2020, compared to last year. With tax revenues also dropping, the IFS pointed out that £70 billion has already been spent in trying to get the country through this crisis.

Most of the extra money has been spent on the Department of Health and Social Care. This includes £15 billion on PPE items and a further £12 billion that was used on introducing the nation´s Test and Trace programme.

Among the areas where they think that savings could be made are the building of new railways and roads, as well as other types of infrastructure. However, this would mean a big change to the government´s established plans to improve transport links across the nation.

Ben Zaranko is a research economist at IFS, and he said that the previously calculated spending figures no longer apply, due to the “immense economic uncertainty” that the Covid-19 pandemic and the Brexit transition period have introduced.

In fact, Zaranko pointed out that previous spending plans have been blown out of the water. He went on to say that the additional areas of spending mentioned earlier could “swallow up huge amounts of money” if they were to become part of life for the next few years.

There is a degree of debate over which type of tax this amount should come from, with income tax, VAT and National Insurance all offering different results. The chancellor has already suggested that tax rises will be needed, but the Autumn Budget was delayed and it isn´t yet clear when it will be announced.