Chancellor Rachel Reeves has dropped a stealth tax bombshell following her latest spring statement – with a £50bn bill to be shared across UK households.
The tax burden is set to hit ‘historic highs’ the OBR said following Rachel Reeves’ spring statement, with Income Tax revenue raised fro UK taxpayers hitting £310bn by the end of the decade, up from £260bn now.
The chancellor did not choose to raise Income Tax thresholds or cut cash ISA limits, but due to wage growth, more households will end up paying more tax due to ‘fiscal drag’ as more people are pulled into higher Income Tax bands over time.
The OBR said in its latest forecasts today: “Tax as a share of GDP is forecast to rise from 35.3 per cent this year to a historic high of 37.7 per cent in 2027-28 and remain at a high level for the rest of the forecast. The sharp forecast increase in 2025-26 is largely due to the Autumn 2024 Budget increase in employer NICs, which takes effect in April 2025, and an expected recovery in capital tax receipts.
“The further forecast rise in the tax take to 2027-28 is mainly due to growth in nominal earnings combined with frozen tax thresholds, further rises in capital taxes, and a boost to receipts from the Temporary Repatriation Facility (TRF) announced at the Autumn Budget as part of the reforms to the non-domicile regime. The tax take is then forecast to level off as personal thresholds are unfrozen, the TRF window closes, and the take-up of electric vehicles reduces fuel duty receipts.”
It added: “Income tax (excluding self-assessment) is forecast to raise £260.3 billion in 2024-25 (9.0 per cent of GDP), a 10.9 per cent increase from 2023-24. This rise is driven by strong nominal earnings growth and frozen tax thresholds. Receipts are then forecast to rise to £310.0 billion (9.6 per cent of GDP) in 2027-28, with growth continuing to be driven by the freezing of personal tax thresholds. Thereafter, growth slows and receipts decline slightly as a share of GDP to £322.0 billion (9.3 per cent) in 2029-30. This is due to the end of the personal tax thresholds freezes in April 2028 and slower nominal earnings growth driven by the assumed fall back in the labour share to its historical average from its peak in 2025-26.
The Chancellor has defended her claim that she restored the fiscal headroom “in full”.
Responding to her shadow counterpart Mel Stride, Rachel Reeves said: “I know the shadow chancellor hasn’t been in this role for very long, but, I mean, at least he’s not misquoting Shakespeare today.
“If this was a budget, then it would be the Leader of the Opposition (Kemi Badenoch) responding. Now, I’m glad that she’s still in her place. I know that she’ll want to get back to her office for a lunchtime steak soon.”
She added: “He asked, what should the markets make? But what the market should see is that when I’ve been tested with the deterioration in the headroom, we have restored that headroom in full. That’s the choice that I made.
“He says that it’s a slither of a headroom. Well, it’s 50% more headroom than I inherited from the party opposite. When I was left with a sliver of headroom I rebuilt it after the last government eroded it. That is the difference that we have made.”
