Taxes - election 2019

The tax and benefit system has undergone significant reform since 2010, with large cuts to working-age benefits, a rise in the main rate of VAT, increases in the rate of the state pension, and reductions in direct tax, including a big rise in the income tax personal allowance. In this briefing note we investigate the impact that these reforms have had on household incomes.

The Labour Party plans to increase income tax for individuals with annual taxable incomes over £80,000. Under the current system, income tax is payable on incomes above the personal allowance of £12,500 a year. The 40% higher rate becomes payable at £50,000, and the 45% additional rate kicks in at £150,000. Labour would introduce a new 45% income tax rate starting at £80,000 a year, and a new 50% rate starting at £125,000, from 2020–21.

In the aftermath of the global financial crisis and associated recession, government borrowing soared to more than 10% of national income. Borrowing has since been reduced through a combination of net tax rises, cuts to the generosity of the working-age social security system and cuts to public service spending. In this briefing note, we provide an overview of what has happened to each of these areas since the crisis, highlighting where (and when) the spending cuts have fallen, and consider the long-term outlook for the make-up of public expenditure.

With taxation set to be a central policy battleground in this election, the IFS today sets out some essential factual background.

The UK raised 35% of national income in tax in 2018–19. Figure 1 shows that tax as a share of national income has fluctuated between around 30% and 35% of national income since the end of the second world war and been rising since the early 1990s. Tax revenues are now, just, higher as a share of national income than at any point since the late 1960s.

The tax and benefit system is a key tool for a government trying to reduce inequality. In this briefing note, we examine the effects that cash benefits and taxes had on UK inequality in 2016–17.

In the aftermath of the global financial crisis and associated recession, government borrowing soared to more than 10% of national income. Borrowing has since been reduced through a combination of net tax rises, cuts to the generosity of the working-age social security system and cuts to public service spending. In this briefing note, we provide an overview of what has happened to each of these areas since the crisis, highlighting where (and when) the spending cuts have fallen, and consider the long-term outlook for the make-up of public expenditure.

With taxation set to be a central policy battleground in this election, the IFS today sets out some essential factual background.

A joint report with CIOT and the Institute for Government.