The Daily Observer London Desk: Reporter- Victoria Smith
Britain must move away from the ‘simplistic and pernicious cycle’ of promising tax cuts while in fact introducing rises, according to a report.
The UK’s tax take will soar to £1trillion over the next couple of years – and by 2027, it will have added the equivalent of £4,200 per household to bills, an analysis by the Resolution Foundation think-tank shows.
It claims the ‘complicated’ system needs to be fairer for low and middle-income families and transformed so that it helps rather than hinders economic growth.
The research comes as the UK faces an increase in the overall tax burden to the highest level – as a proportion of GDP – since the Second World War.
Stealth tax rises mean millions of middle earners are being dragged into paying more while corporation tax has gone up from 19 per cent to 25 per cent.
Chancellor Jeremy Hunt has conceded that the tax burden is too high
It all adds to the financial pain facing families and businesses – already being squeezed by surging costs and steep increases in borrowing rates – ahead of a likely general election next year.
Higher tax rates were recently blamed for drugs giant AstraZeneca choosing to build a factory in the Republic of Ireland rather than England while oil and gas producers rail against windfall taxes on their industry.
Chancellor Jeremy Hunt has conceded that the tax burden is too high but shied away from cuts at a time when the Government’s priority is to tackle galloping inflation.
The Resolution Foundation document urges the Government to ‘move away from flip-flopping’, such as when it cut and then raised corporation tax, and ‘wishing away problems’, such as the billions of pounds of fuel duty revenue it will forsake if it keeps freezing forecourt tax on petrol and diesel.
It notes that the tax take is set to rise from 33 per cent of GDP in 2009/10 to 38 per cent by 2027/28 – equivalent to £4,200 per household.
Many Tory MPs argue that cutting tax rates ultimately results in more revenue by encouraging more business activity.
Sir John Redwood, a former trade minister, said: ‘We are overcharging and putting people off, deterring investment.
Too many businesses are going to Ireland, we have lost investment in the North Sea because of tax. We need rates where people will stay and pay.’
Adam Corlett, principal economist at the Resolution Foundation, said: ‘The UK’s taxes have jumped up overall and are more likely to rise further than fall in future, despite the political rhetoric around cuts.
‘But this rising quantity of tax revenue has not been matched by a rising quality of tax policy.
The report from the Resolution Foundation think-tank claims the ‘complicated’ system needs to be fairer for low and middle-income families
‘There is no strategy behind a complicated system that sees some business owners pay no tax on their profits while some families face marginal tax rates of over 80 per cent.
Britain’s tax system needs a complete overhaul so it is focused on helping rather than hindering economic growth.’
The report does not call for a cut in the overall tax revenue collected by the Government but claims the burden should be shared out more fairly.
Controversially, it calls for a capital gains tax rise though it argues this should apply only on gains made on a sale above inflation.
