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Another Ten Pence On The Pound Is Brown's Tax Legacy

by Robert Lee, Tax-News.com, London

05 June 2007


The average Briton is effectively paying ten pence more on the pound in income tax as a result of Gordon Brown's ten years in charge of the nation's purse strings, according to a new report.

The study by business advisers Grant Thornton attributes about 70% of this increase in the tax burden to so-called 'fiscal drag', also known as 'bracket creep' whereby the government fails to adjust marginal income tax brackets in line with wage inflation, meaning more taxpayers have been dragged into the higher income tax bands during Brown's tenure at the Treasury. This effect also applies in other areas of taxation, such as inheritance tax, where house prices have rocketed during the last ten years, but the threshold at which IHT becomes payable has, comparatively, barely moved.

The government's own figures show that 3.5 million taxpayers now pay tax at the higher rate of 40% - a 58% rise since the Labour government came to power in 1997.

Grant Thornton also said that the government's cash haul from taxation has increased by GBP29 billion more than if it had increased in line with economic growth.

Furthermore, the report points out that income tax legislation has almost doubled in the last ten years from 4,555 pages to 9,973 pages.

“An increase in the tax burden equivalent to 10p on basic rate income tax equals an increase in tax revenue of around GBP40 billion a year, or GBP1,600 per UK household on average. That’s around GBP30 week. For some mortgage-holders this would be more than their mortgage," Maurice Fitzpatrick of Grant Thornton observed.

And despite Brown's decision to decrease the rates of corporate and personal income tax by 2% in his last budget before succeeding Tony Blair as Prime Minister, tax advisers say that lost revenue will be clawed back and more through less-publicised tax changes elsewhere.

Francesca Lagerberg, head of Grant Thornton's national tax office, noted: "Despite headline announcements in this year's Budget of dropping the basic rate of income tax, aligning national insurance contributions and reducing mainstream corporation tax, the reality is that other increases will lead to a maintenance of the status quo."

"Aligning national insurance to a higher tax threshold will in total eat away most, if not all of the savings generated from cutting the basic rate of income tax by 2 pence to 20 pence from April 2008," she added.

The Grant Thornton report was published on the eve of 'Tax Freedom Day' which fell on June 1 this year. Tax Freedom Day, calculated annually by free market think-tank, the Adam Smith Institute, shows just how long we spend working for the Treasury, rather than for ourselves. Overall, the ASI says that the government takes more than 40% of national income - meaning that the average UK resident has to work a full five months of the year solely to pay their tax bill.

The ASI calculates Tax Freedom Day by taking the UK's net national income and calculating how much of that is taken away in taxes. These taxes include not just income tax, but VAT, inheritance tax, stamp duty, car and fuel taxes, excise taxes on alcohol and cigarettes, taxes on companies and employment, and many more.


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