Recent analysis from the Organisation for Economic Cooperation and Development (OECD) shines a spotlight on a startling trend: a 40% surge in payments to the Exchequer since the onset of the pandemic. Digging deeper into the numbers, we find that in Q4 2019, UK households parted with £60.6bn in income and wealth taxes.
"Fast forward to Q1 2023, and this number swells to a staggering £84bn!"
But what's driving this significant increase? According to the OECD, much of it can be traced back to freezes on income tax and capital gains thresholds. With these freezes in place and nominal incomes on the rise, more people find themselves paying higher tax rates. These frozen thresholds mean more individuals are subject to tax and at steeper rates. Simply put, a larger chunk of people's earnings is now going to the taxman.
I know it sounds obvious, but it's worth saying: UK households are bearing the brunt of rampant government spending. With a surge in civil service employment and significant public sector waste, UK residents are paying the price. And I feel it's a steep one.
"Yet, with the general elections looming, whispers of tax cuts are in the air!"
Both Rishi Sunak and his Chancellor, Jeremy Hunt, have alluded to their prioritisation of curbing inflation. However, sources intimate that Downing Street might be considering income tax reductions of up to 2p.
And now I have to raise a flag of caution as such a decision is more political than economical and is fraught with risks. A 2p decrease in income tax translates to approximately £15bn, prompting concerns about the Bank of England's potential response. It could lead to a turbulent market reaction similar to the aftermath of Liz Truss' disastrous mini-budget.
"But there's a broader point to consider!"
If we want enhanced public services, we might have to shoulder a more significant tax burden. As the general elections approach, clarity from both the Conservatives and Labour on this matter would be beneficial. Honesty on tax and spending might be too much to hope for.
We certainly need transparency and actionable solutions to navigate the challenges ahead.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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