UK faces the biggest rise in tax receipts among rich nations, the IMF warns
Britain’s tax burden is on course to rise more than any other major rich nation this decade amid fears that Rachel Reeves’s Budget raid will push it even higher.
Projections by the International Monetary Fund (IMF) show “general government revenue” driven by taxes will rise to 39.3pc of gross domestic product (GDP) by 2029, up from a pre-pandemic share of 36.3pc.
This increase is larger than any other G7 economy, including Japan, the US and Germany, while Italy and France are projected to see reductions in their much bigger tax burdens compared with 2019.
The IMF’s forecasts, which factor in tax cuts implemented by Jeremy Hunt, the former chancellor, in the spring budget, highlight the challenge of bringing down the tax burden.
The burden will rise modestly this year and remain stuck at 39.3pc of GDP until the end of the decade, the IMF said, despite big cuts to National Insurance.
The Institute for Fiscal Studies has warned that the Chancellor’s maiden Budget is likely to push the burden to a new peacetime high if it is to be consistent with her pledge not to return to austerity.
Ms Reeves is widely expected to launch one of the biggest tax raids in modern history to plug an expected £40bn funding gap. This includes National Insurance on employers’ pension contributions, capital gains and inheritance in the Budget on Oct 30.
The IMF warned that UK debt was on course to keep climbing until the end of the decade, putting it on an unsustainable path.
Its chief economist warned this week that rising debt could leave the UK at the “mercy of market pressures” in the absence of a plan to drive it down.
It also suggested that lockdown had left the size of the state permanently bigger.
The IMF’s latest projections show “general government spending” will stand at 42.7pc of GDP by the end of the decade.
While this represents a substantial fall from its peak of 50pc of the economy during the height of the pandemic in 2020, it remains well above its pre-pandemic share of 38.7pc of GDP, 10 years after the first lockdown.
The projected increase in public spending as a share of the economy since the pandemic is also larger than any other G7 country, including France.
The Chancellor has vowed there will be no return to austerity, signalling this month that the NHS will enjoy a major funding boost in the Budget, even as some Whitehall departments face tough short-term financial pain.
The IMF projections already factor in higher public spending in the coming years compared with assumptions used in March by the Office for Budget Responsibility (OBR), the Government’s tax and spending watchdog.
The IMF said in May that spending pressures on public services were likely to be sustained in the coming years.