Britons face highest tax burden in history by 2030 ...Middle East

Britain remains on course to have its highest ever tax burden as the Government commits to hike taxes and cut spending across most of Whitehall in the run-up to the next general election.

Rachel Reeves used her spring statement to argue that the economy is turning the corner, with an upgrade to the size of the economy per head of population and lower inflation predicted in the coming years.

But the new forecast from the Office for Budget Responsibility (OBR) does not take into account any possible knock-on effect from the war in the Middle East launched this week by Donald Trump.

And despite the brighter picture on some metrics, its analysis of the public finances confirmed that taxes are due to rise significantly in the years leading to the next election – at the same time as spending on “unprotected” Government departments is cut.

High tax due to threshold freeze and EV levy

In a bid to win over Labour MPs who are unhappy with Downing Street’s approach in the wake of a string of scandals and a bruising by-election defeat in Gorton and Denton, the Chancellor told the Commons: “We must reject the temptation of easy answers and reckless borrowing, protect family finances and get the cost of living down.

“My plan is the right one. I am in no doubt about how great the rewards can be if we stay the course.”

But the OBR’s economic forecast confirmed a looming squeeze on both tax and public spending which will take effect between now and the general election, which is due to take place by the summer of 2029.

The overall burden of taxation is on course to rise from 36.3 per cent of GDP this year to 38.3 per cent in 2029-30 – election year – a record high in peacetime.

The OBR report said: “National Accounts taxes as a share of GDP are forecast to increase from 36 per cent of GDP this year to 38 per cent of GDP by the end of the forecast, with personal taxes accounting for half the increase. The projected 2030-31 level would be a historical high in the UK and almost 6 per cent of GDP above the pre-pandemic level.”

This is a result of announcements previously made by the Chancellor, including the extended freeze on income tax thresholds, curbs on tax-free pension savings and a new levy on drivers of electric cars.

Reeves says households will be £1,000 better off

But much of that increased revenue will be used to reduce borrowing, with Government services facing a tight settlement after 2028: from that year, spending on unprotected departments – everything expect health, education, defence and foreign aid – will fall by 4 per cent annually in real terms. Meanwhile welfare spending is due to keep rising to a peak of more than £400bn a year.

In a strong defence of her policies Reeves added that the average household would become £1,000 better off over the course of Labour’s term in office, while public borrowing has fallen since the Budget in the autumn and she has more “headroom” against her fiscal rules.

Reeves told Parliament she would use a speech later this month to lay out new plans to go further on driving growth by bolstering international trading links, ramping up innovation in new technology, and “transforming our economic geography” to make the country more equal.

Plans at risk from war in the Middle East

But multiple economists warned the Chancellor that her plans risk being derailed by the possibility of global economic turmoil resulting from war in the Middle East, including the prospect of sharply higher oil and gas prices.

Helen Miller of the Institute for Fiscal Studies said: “The economic outlook, and therefore the outlook for borrowing, could shift more materially between now and the Budget in the autumn.

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“The conflict in the Middle East is already pushing up oil prices, gas prices and expectations for interest rates. It could yet cause more far-reaching economic disruption.”

Trade unions called for the Treasury to draw up Covid-style emergency plans to help families with the cost of living in the event of a fresh spike in inflation.

“Paul Nowak of the Trades Union Congress warned: “The Government must stand ready to pull every lever to shield households and firms from further global shocks. It’s welcome that household bills will shortly fall and are protected until the summer, but ministers must plan to step in after if needed.”

Sir Mel Stride, the Conservatives’ shadow Chancellor, accused Reeves of “utter complacency” and claimed her policies had helped to damage growth by making it harder for companies to hire workers. In response, the Chancellor said the Tories were “wrong about the economy time and time again”.

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