QE Tax Flash: The Spring Squeeze

While no new tax rises were announced in the Chancellor’s Spring Statement, the real substance lay in the Office for Budget Responsibility's accompanying Economic and Fiscal Outlook. The overall tax take as a share of GDP is forecast to rise from 34.5% of GDP in 2024/25 to a post-war high of 38.5% of GDP. Much of this is driven by personal tax threshold freezes, which the OBR has warned increases the risk that incentives within the tax system distort or constrain economic activity by more than expected.

The squeeze continues… Taxpayers will be bracing themselves for a prolonged period of high taxation. 

Liesl Fichardt: "The OBR forecasts tell a clear story: the tax burden is at a high and will stay there. The government does not need to announce new taxes to increase what taxpayers pay, fiscal drag is doing that work quietly."

Emily Au: “The absence of major announcements in the Spring Statement will not prove comforting for those who have felt the effects of a high tax burden for a long time. HMRC’s tax enforcement approach is increasingly stringent, and political demands and uncertainty mean that there will likely be pressure for this fiscal environment to continue.”

Julius Berling: "A stable Spring Statement does not mean a quiet start to the new year for taxpayers. Changes to carried interest, umbrella companies, MTD and higher penalties, for example, have come into effect and the OBR's outlook suggests compliance pressures will increase."