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Home World Economy

The UK’s Tax Burden Set to Reach a Post-War High of 37.7% of GDP by 2027-28

Yasmim Mendonça by Yasmim Mendonça
March 16, 2023
in World Economy
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The Office for Budget Responsibility (OBR) has released a document that predicts the UK’s tax burden will hit a post-war high of 37.7% of GDP by 2027-28. The report, which coincides with Chancellor Jeremy Hunt’s Spring Budget, highlights that this figure is 4.7 percentage points higher than the pre-pandemic level of 33%. The OBR’s prediction underscores the UK’s significant economic challenges after the COVID-19 pandemic.

The OBR report indicates that the tax burden in the UK has steadily risen over the years, driven by increasing levels of government spending and debt. The report also suggests that the tax burden will continue to increase, fueled by growing pressures on public services such as healthcare and education. The OBR predicts that the primary corporation tax rate will rise from 19% to 25% in April, returning to levels last seen in the early 2010s.

While the increase in the tax burden may be necessary to support public services, it could have significant implications for the UK economy. Higher taxes could impact businesses’ ability to invest and grow, ultimately slowing economic growth. Moreover, the OBR report also forecasts that the headline measure of public sector net debt in the UK will reach 103.1% of GDP in the financial year ending March 2024. This level of debt could limit the government’s ability to stimulate the economy through fiscal policy.

The report’s release comes as the UK continues to grapple with the economic fallout from the COVID-19 pandemic. Despite the ongoing vaccination efforts, the pandemic’s impact on the UK economy has been severe. The OBR report highlights the importance of balancing the need for public services with the need to maintain economic stability and growth.

In conclusion, the OBR report underscores the challenges for the UK economy after the pandemic. While higher taxes may be necessary to support public services, they could have significant implications for economic growth. The UK government must find a way to balance the need for public services with the need for financial stability and development, particularly as the country continues to navigate the uncertain post-pandemic landscape.

One possible implication of the rising tax burden highlighted by the OBR report is that it could impact the UK’s attractiveness as a destination for foreign investment. Higher taxes could reduce the incentives for foreign businesses to invest in the UK, potentially leading to a decline in economic activity and job creation.

Moreover, the increase in the tax burden is occurring alongside ongoing Brexit-related uncertainties and trade disruptions caused by the pandemic. These factors could further dampen investor confidence in the UK, making it more difficult for the country to attract the foreign investment it needs to sustain economic growth.

The OBR report also notes that the UK’s tax system could become increasingly complex and challenging for taxpayers to navigate as the tax burden rises. This complexity could further discourage foreign investors and reduce tax revenue if taxpayers become less compliant due to confusion or frustration.

To mitigate some of these potential negative impacts, the UK government could consider implementing policies to support economic growth and attract investment. This could include simplifying the tax system, reducing regulatory burdens, and increasing investment in infrastructure and innovation.

Overall, the OBR report highlights the significant challenges facing the UK economy as it seeks to recover from the pandemic and adapt to the changing global economic landscape. The UK government will need to carefully balance the need for public services with the need for economic growth and stability while also taking steps to attract foreign investment and support businesses.

Tags: UK's Tax Burden
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