Tax rises of £800 a year coming whoever wins UK election, thinktank finds

London: Tax rises “hiding in plain sight” that will cost UK households an average of £800 a year are already on the way whoever wins the general election, a leading thinktank has warned.

While the Conservatives and Labour argue about what levies the other would introduce in power, the Resolution Foundation has warned that already announced measures will increase the total tax take by about £23bn a year by 2028-29.

Neither party has committed to axing the moves from recent budgets and autumn statements, which include the continuation of the six-year freeze to income tax and personal national insurance thresholds and next spring’s reversal of temporary cuts to business rates, fuel duty and stamp duty land tax.

Freezing existing tax rates increases revenue for the Treasury, since inflation and resulting pay rises mean more people are pulled into the higher-rate tax band, a process known as fiscal drag. Income tax thresholds have been frozen since 2022 and are expected to remain so until April 2028.

The sum the Treasury is raising from taxes is at a historic high, the Resolution Foundation found, because of increases in corporate tax revenue and taxes on higher earners. The share of taxpayers paying a higher marginal rate of 40% or more has risen from one in 10 of the population in 2010 to one in six in 2023, the equivalent of 3 million more people. However, some middle-income earners are better off because of this year’s cuts in national insurance contributions.

The analysis comes days after Rishi Sunak claimed in the first televised debate that Keir Starmer would raise taxes by £2,000 “for everyone”. The assertion was dismissed by the Labour leader as “absolute garbage” and refuted by the Treasury permanent secretary, James Bowler, who said ministers had been told not to suggest civil servants had produced the figure.

The Conservatives were also censured by the UK statistics watchdog on Thursday over the claim. The Office for Statistics Regulation said it was concerned that those listening would have no way of knowing the £2,000 was not an annual tax rise but was a sum totalled over four years.

the nib of a yellow ballpoint pen starts to fill in boxes in the ‘pay from employment’ section on a pink and blue tax form

Adam Corlett, the principal economist at the Resolution Foundation, said: “History tells us that tax rises often come after general elections – and it is already very clear that there is enormous strain on public services – though this will be made harder if the parties continue to box themselves in on tax changes.”

The study found that after the past eight elections, the first two fiscal events have introduced new tax policies that raised taxes by an average of £21bn a year.

It came as a separate report from the Institute for Fiscal Studies (IFS) thinktank, which calculated that the incomes of families with children have fallen by an average of £2,200 a year since 2010 after changes to taxes and benefits.

The IFS found parents who were out of work have had the biggest fall in their incomes, losing £5,500 a year, but in-work families had their entitlements cut back.

Among the changes affecting families with children are reductions in the level of child tax credits and the “two-child limit”, which restricts child tax credit and universal credit to the first two children in most households. The IFS said the overall benefit cap also primarily impacted families with children.