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UK tax burden to rise to record levels

Treasury Committee report: UK tax burden to rise to record levels
Treasury Committee report: During the last budget on 27 October, Rishi Sunak announced a large increase in departmental spending, with various tax hikes. Photo: May James/Reuters

The Treasury Committee has reiterated that the UK’s tax burden will rise to levels not seen during peacetime as it seeks to recover from the coronavirus pandemic.

It comes as the department published its latest verdict on the Autumn Budget and Spending Review 2021 on Thursday.

The report, which was unanimously agreed by the cross-party Committee of MPs, explores the current tax burden, changes to the health and social care levy and the pre-briefing of budget measures.

During the last budget on 27 October, Rishi Sunak announced a large increase in departmental spending, with various tax hikes.

At the time of the budget Sunak said: “Taxes are rising to their highest level as a percentage of GDP since the 1950s. I don’t like it, but I cannot apologise for it — it’s the result of the unprecedented crisis we faced and the extraordinary action we took in response.”

Watch: Budget 2021: Sunak's budget was progressive — but that doesn't mean you will feel better off

But the committee said on Thursday that if Sunak wanted to be able to cut taxes while still meeting his fiscal rules, he may have to identify areas of departmental spending where he can reduce spending in real terms even if this is in the face of increased demand.

It criticised a lack of spending in education. While some departments which had been significantly disrupted by the pandemic, such as the Department of Health and Social Care and the Department for Transport, received large increases, the Department for Education, which was also affected by the pandemic, did not receive such a generous settlement.

School funding per head has only now returned to 2010 levels following the latest budget.

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According to the Office for Budget Responsibility (OBR), the finance minister has between a 55% and 60% chance of meeting his fiscal rules.

It explained that the headroom he has given himself is small when compared to previous OBR forecast errors, and could be used up just through typical changes in the forecast outlook.

The report stated that the OBR’s central forecast for the path of inflation could be too low. Since the budget, inflation has already significantly exceeded the level forecast by the OBR in October.

The Bank of England (BoE) raised interest rates from 0.1% to 0.25% in December to bring the rate of inflation back towards its 2% target, and is likely to increase them further in the coming months.

“It is therefore likely that by the next economic forecast, the chancellor may be faced with significantly higher interest costs than those included within the October economic forecast.”

Responding to the universal credit taper rate, it welcomed the reduction, saying that it would provide a stronger incentive for many to take on additional work.

“However, the taper rate reduction will be of no benefit for recipients of universal credit who are not able to work.

“The government should think carefully about how it intends to support such people, given the increases in the cost of living that are emerging.”

Read more: UK wages fall below inflation as jobless rate declines

It also warned that early disclosure on changes to the rate of the national living wage could have caused confusion in the market.

Elsewhere, it said it was “disappointing” that the government has pushed back on its target to spend £22bn per year on research and development (R&D) by two years from 2024–25 to 2026–27.

However, the new commitment is still believed to represent a significant increase, and will bring public UK R&D spending above the OECD average, and above Germany, France and the US.

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