Westminster

How do changes in UK government revenues over time compare with what has been seen in other advanced countries?

The role and size of the state vary greatly across countries and across time. One way to look at this is through the lens of government revenues as a share of national income. This measure is relatively robust to periodic fluctuations in the size of the economy (more so than government spending, as tax revenues typically follow the ups-and-downs of the economic cycle whereas spending tends to be countercyclical). This makes it a useful indicator for describing trends in the structure of the economy, tax policy and the changing role of government, as well as comparing different countries. Government revenues have been on the rise in many advanced economies recently, with many countries approaching – or being at – their record-high levels. Revenues in the UK fell well below the average of its peers over the 1980s but have been catching up since then. With the latest tax rises announced in the October 2024 Budget, total revenues in the UK are forecast by the Office for Budget Responsibility (OBR) to exceed the average of other advanced countries and reach near-record levels seen just after the Second World War. 

How do UK revenues compare with other countries?

Figure 1 shows internationally comparable data from the International Monetary Fund (IMF) on government revenues for the UK alongside the averages taken across 36 other advanced economies1 and the 27 EU countries. The IMF’s methodology differs slightly from the OBR’s, and its data are also available for a shorter period. Nevertheless, the general trends are consistent across the two series, and the IMF data allow for a consistent international comparison. It is noticeable that the IMF’s October 2024 medium-term forecast does not have tax revenues continuing to rise sharply going forwards. In part, this will reflect the fact that the IMF forecasts do not include the impact of the tax-raising measures announced in the latest Budget. 

Figure 1. Government revenues in the UK and other advanced economies

Figure 1. Government revenues in the UK and other advanced economies

Note: General government revenues, unweighted average for other countries shown.
Source: International Monetary Fund, World Economic Outlook (October 2024); Office for Budget Responsibility, Economic and Fiscal Outlook (October 2024).

Revenues in the UK last peaked at the start of the 1980s. At that time, they were very close to the average of other comparator countries. This was followed by diverging trends through the 1980s – revenues fell sharply in the UK until their trough in 1993, while they were, on average, rising slightly in other countries. Since then, the UK has been catching up with other countries. Based on the latest OBR projections, UK revenues will rise close to the record-high levels seen just after the Second World War by the end of the decade and this would bring them slightly above the average of IMF forecasts for other advanced economies and just shy of the average of the EU countries.

As part of this increase, taxes, which form the biggest share of total government revenues, are set to rise to levels not seen before in the UK, as shown in Figure 2. However, non-tax revenues,2 which fell considerably over the 1980s, have not recovered since then. They fluctuated around 6% of national income but now reach only around 4%, as shown by the gap between total revenues and taxes in Figure 2. This is driven mostly by declining gross operating surplus – the income the government receives from some of the services it provides. As a result, overall revenues remain below their late-1940s peak – albeit still at levels that the UK has never sustained for any period of time before.

Figure 2. Total revenues and taxes in the UK

Figure 2. Total revenues and taxes in the UK

Source: Office for Budget Responsibility, Economic and Fiscal Outlook (October 2024).

Other countries vary widely in how much revenue their governments collect, but as Figure 1 shows, the average remained virtually unchanged between 1980 and 2001, both in the EU and in a wider set of countries. The initial increase in revenues over the 1980s was offset by revenues being reduced in the 1990s. On the other hand, rising government revenues are not uncommon in advanced economies more recently – their average has been steadily rising over the 21st century. However, the rise in the UK has been faster than elsewhere and we are therefore catching up with the average of our peers. In 1980, the UK was in the lowest third of the countries in the sample at the time. In the 1990s, it fell to the lowest fifth of countries, while in 2023 it moved back to its 1980s rank in the lowest third of countries.

Revenues are near their record high in most countries

Figure 3 shows countries ranked by their government revenues in 2023. Clearly, there are some much-higher-tax economies than the UK (such as many in Scandinavia and Western Europe) and some much-lower-tax economies (such as Ireland and the US). The graph also shows how individual countries today compare with their respective country-specific average and peak revenues. Only 10 countries now collect less revenue than they did on average in the past – and only Sweden and Malta are at their lowest levels in recent history. More are at or near their record high in terms of revenues. Out of the 37 countries shown in Figure 4, 16 were only within 2% of GDP of their highest levels in 2023, and these include the UK.

Figure 3. Trends in government revenues in advanced economies

Figure 3. Trends in government revenues in advanced economies

Source: International Monetary Fund, World Economic Outlook (October 2024).

Figure 4. Difference in government revenues in 2023 from their peak

Figure 4. Difference in government revenues in 2023 from their peak

Source: International Monetary Fund, World Economic Outlook (October 2024).

Most advanced economies face similar spending pressures to the UK, such as rising costs of healthcare and social care for ageing populations, a slowdown in growth and, more recently, a rise in debt interest spending. But only a few countries have seen such a steep rise in government revenues in recent years. The UK used to be a comparatively low spender but our appetite for public services has increased relatively fast, and the UK has already caught up with the average of its counterparts in terms of government spending. Given this, alongside a desire to stop debt from continuing to rise further, it should not be a surprise if the UK finds that it needs to tax as much as the average advanced economy too. 

 

Endnotes

  1. 1

    In addition to the G7, these include the EU27, Iceland, Norway, Switzerland, Australia, New Zealand and South Korea.

  2. 2

    Non-tax revenues consist mainly of interest, dividends and profits from state-owned enterprises, and other small revenues (such as fines or certain fees and charges).