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Tax Rises Expected Over the Next 5 Years

Over the next five years, tax rises in the UK seem hard to avoid. The Institute for Fiscal Studies (IFS), a leading think tank, has warned that both major political parties are not addressing the tough choices needed for public finances. The IFS says it will be a big surprise if taxes do not go up in this period.

 

The Situation

The UK’s debt is the highest it has been in over 60 years. Taxes are near record highs, but public services are still struggling. The government has large interest payments on its debt, and welfare costs have increased. Spending on health will likely rise because the population is getting older, and more money will also be needed for defense. Despite this, economic growth remains slow.

The Choices

Paul Johnson, director of the IFS, highlighted that these facts are ignored in the manifestos of the main parties. He stated that big decisions about the future of the state will need to be made. These decisions will probably lead to higher taxes or worse public services.

The IFS mentions a “trilemma” for the next government:

  1. Raise taxes more than promised.
  2. Cut spending in some areas.
  3. Borrow more, letting debt rise further.

The manifestos do not make clear what will be chosen.

Party Responses

The IFS criticized both Labour and the Conservatives for ruling out increases to income tax, National Insurance, and VAT. Johnson believes it is unlikely that no other taxes will be raised.

Prime Minister Rishi Sunak responded, saying his party’s manifesto is fully costed and aims to deliver tax cuts by finding savings in the welfare budget.

Labour leader Sir Keir Starmer said their manifesto focuses on changing the flatlined economy by promoting growth.

The Liberal Democrats claim their manifesto is also fully costed, aiming to invest in public services by taxing big banks and billionaires.

Concerns and Criticisms

The IFS condemned the lack of transparency about keeping income tax thresholds frozen, which would raise £10bn a year. All major parties plan to keep this measure.

The IFS also doubts that parties can raise £5bn by cracking down on tax evasion and avoidance, noting that most shortfalls in tax collection are from self-employed individuals and small businesses, not big corporations.

Smaller Parties

The IFS looked at the Green Party and Reform Party manifestos too. The Green Party plans major spending funded by tax rises and borrowing. Reform proposes large tax cuts and increased spending, funded by vague measures like cutting welfare and waste.

Johnson criticized these plans as unrealistic, saying they harm political debate by suggesting unattainable solutions. The Green Party disagreed, advocating for a European-style economy with higher taxes and more government intervention.

In summary, tax rises in the UK over the next five years seem likely, given the high debt, struggling public services, and slow economic growth. The main political parties have not addressed these issues directly, leaving voters uncertain about the future.

 

 

Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom.  Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand. 

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