High tax economy costs £25,000 per person in direct taxes and lost growth

Embargoed: 00:01 Monday 21st November 2022

• Official tax burden is the direct burden of tax on the economy, and will reach record levels, but does not account for the indirect impact of lost growth.
  
  
• By comparing to a growth-maximising scenario, the TaxPayers’ Alliance have estimated the value of lost economic activity to be £834 billion, alongside the £825 billion paid in taxes, to produce a total real tax burden of £1.7 trillion.
  
  
• This equates to 70.8 per cent of current GDP, a burden of £24,574 per person.

Following the fiscal statement, TaxPayers’ Alliance (TPA) analysis has suggested that the real impact of record tax levels equates to around £12,225 taken in tax and £12,349 for the lost GDP, a burden of £24,574 per person each year.

The official tax burden is measured by tax levels over GDP, and is now projected by the Office for Budget Responsibility (OBR) to reach 37.4 per cent in 2023-24, the highest on record. This is the direct burden of tax on the economy, but does not account for the indirect impact of unrealised growth as a result of higher taxes. 

The current official tax burden is 14.2 percentage points more than the growth-maximising ratio identified by economists. By comparing the current tax burden to a growth-maximising scenario, the TPA have estimated the value of lost economic activity to be £834 billion, alongside the £825 billion paid in taxes, to produce a total real tax burden of £1.7 trillion. As a share of current GDP, this would mean that the real tax burden equated to 70.8 per cent, double the official tax burden of 35.2 per cent in 2021-22.

The TPA campaigns for current receipts to fall to 33 per cent of GDP. This would fund spending on public services at a scale akin to Australia or Switzerland, and would lower the real tax burden to 48.6 per cent of current GDP.

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Key findings:

• If taxes were set at the growth-maximising ratio, GDP could be £834 billion higher (£12,349 per person) three years after implementation.
  
  
• Adding an estimate of £12,349 for the lost GDP per person caused by high taxes to the £12,225 per person collected in tax produces a real tax burden of £24,574 per person.
  
  
• At a national level, this would mean adding £834 billion of lost economic activity to the £825 billion paid in taxes to produce a total tax burden of £1.7 trillion.
  
  
• As a share of GDP, this means that the real tax burden equates to 70.8 per cent, double the official tax burden of 35.2 per cent of GDP in 2021-22.
  
  
• Dividing that by a notional, larger GDP that would result from a lower tax burden would still produce a real tax burden of 52.2 per cent.
  
  
• If taxes were set to meet the TaxPayers’ Alliance Single Income Tax recommendation where current receipts consume 33 per cent of GDP, then GDP would be £362 billion higher (or £5,366 per person) three years after being implemented.
  
  
• Accounting for the suppressed economic activity relative to the TaxPayers’ Alliance recommended optimal ratio of taxation and spending to GDP, the real tax burden could be 40.3 per cent of a GDP estimate that is revised up accordingly. As a share of existing GDP, this equates to 43.8 per cent, substantially greater than the official tax burden of 35.2 per cent of GDP in 2021-22.
  
  
• The official tax burden for 2021-22 of 35.2 per cent is the highest since the 1950 level of 36.1 per cent. It is 6.2 percentage points more than the Single Income Tax optimal recommended ratio and 14.2 percentage points more than the growth-maximising tax ratio.
  
  
• The official tax burden for 2022-23 of 36.4 per cent is the highest since the 1949 level of 36.9 per cent. The official tax burden for 2023-24 of 37.4 per cent is the highest on record. OBR records begin in 1948 at 37.2 per cent.

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Duncan Simpson, chief economist of the TaxPayers' Alliance, said:

“The direct and indirect impact of record tax levels is enormous.

“The chancellor’s plans for ever-higher taxes, to fund sustained excessive spending, will create an almost unmanageable burden that permeates through to our economic performance.

“The real burden on taxpayers remains far too high and robs Britain of the growth it sorely needs.”    

TPA spokespeople are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)

Media contact:

Joe Ventre
Digital Campaign Manager, TaxPayers' Alliance
[email protected]
24-hour media hotline: 07795 084 113 (no texts)

Notes to editors:

1. Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
   
   
2. TaxPayers' Alliance's advisory council.