Following a weekend of celebrations, it is the free marketeer’s favourite day of the year: Tax Freedom Day!
On this day, the average Briton stops working for the Chancellor and starts working for themselves. While this might sound like a joyous occasion, this year it comes a full week later than last year. To put it into perspective, this is the latest since the mid 1980s, meaning this ‘low tax chancellor’ has presided over higher taxes than throughout Labour’s 13 year premiership.
Seeing income tax and national insurance contributions taken from the payslip is frustrating enough. But when you add corporation tax, VAT, stamp duty, excise duties and other indirect taxes, the end result of a 43 per cent tax rate is almost unfathomable.
Unless the mindset in Whitehall changes, this is only going to continue. It is estimated that by 2026, Tax Freedom Day will be the 24th June. The combination of Johnson’s profligacy and the Treasury’s focus on a balanced budget is a recipe for a high tax disaster. Sooner or later the Treasury will have to realise that in order to reduce tax, they must also reduce spending.
Paying for empty London offices while civil servants work from home might look like obvious wasteful spending to most, but this does not seem to resonate in Whitehall. For the time being, it seems that we’ll continue to spend 159 working days paying for nanny statism and random pet projects like a £20m sustainable City Centre learning environment in Wolverhampton.
Much of this increase has arisen from stealth taxes, which are less politically damaging but equally detrimental both to the economy and to businesses. While Sunak advertises the increased threshold for national insurance contributions and the reduction in the headline rate of income tax, he avoids commenting on the continued freeze on income tax thresholds. Inflation hit 9 per cent in April, meaning if pay increases in line with inflation (thus no real increase), many people will be pushed into higher tax brackets, forfeiting a larger proportion of their unchanged income.
Following 0 per cent GDP growth in February and 0.1 per cent decline in March, it is no wonder that Sunak’s public intention is to ‘boost growth and productivity’. However, his policies do not follow suit. Not only is raising tax inevitably bad for growth, but the OECD found that corporation tax has the most detrimental impact of all, making Sunak’s decision to increase corporation tax from 19 per cent to 25 per cent in 2023 completely counterproductive.
In 2021 the CPS calculated international tax competitiveness, ranking OECD countries in order of how ‘pro-growth’ their tax policy is. The UK came 22nd out of 37, and following the planned tax changes it will fall to 30th.
If Johnson wants to remain in Downing Street, he’s going to have to bow to some of the conditions of his backbenchers. These backbenchers, like the public, can not only see him veering away from his low tax manifesto, but from basic economic sense. If tax policy won’t change because of a core belief in free market principles, we can at least hope it changes because Boris wants to keep his job.
