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UK Tax Freedom Day Falls On May 14

by Robert Lee, Tax-News.com, London

13 May 2009


Tax Freedom Day, or the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on May 14 this year, according to independent think-tank the Adam Smith Institute.

The ASI has calculated that this is the earliest Tax Freedom Day since 1973 which, on the face of it, is good news for taxpayers. However, it still means that for 135 days of the year, every penny earned by the average UK resident will have been taken to support government expenditures. Moreover, the ASI points out that the traditional Tax Freedom Day measure only reflects the money actually raised by the government in taxes, not the full amount it spends. If the government deficit is factored in, Tax Freedom Day does not come until June 25 – the worst figure since 1984.

This gap between Tax Freedom Day based on actual revenues and Tax Freedom Day based on government spending is now the widest it has been since the early 1970s – and possibly since World War II.

According to Gabriel Stein, Chief Economist at Lombard Street Research who calculates Tax Freedom Day every year, the figures indicate a bleak future for British taxpayers: "Running up deficits can be described as a form of deferred taxation. The effect will be that when the economy recovers – as it will eventually do – the UK tax burden is likely to rise much faster than would otherwise have been the case and Tax Freedom Day is likely to creep later and later in the year."

The Institute says that the reason that Tax Freedom Day will arrive so early in 2009 is not so much that the tax burden has been dramatically reduced as it is that tax revenues have collapsed due to the sharp downturn in the economy.

Dr Eamonn Butler, director of the Adam Smith Institute, commented: "It's nice to see Tax Freedom Day come early, but our research doesn't leave me optimistic. Under Gordon Brown's stewardship of the economy, the government's annual deficit went from near-balance in 1998 to more than 3% in 2007. And that was when the UK economy was growing strongly. Now the Chancellor is forecasting a 13.3% deficit. Young people have the right to feel very angry, because they'll be carrying the burden of these mistakes for years to come."

Tax Freedom Day shows the total tax paid each year by a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions, as a percentage of that individual's total income. It is calculated by comparing general government tax revenue with the Net National Income. The total of all government tax revenue – direct and indirect taxes, local taxes and National Insurance contributions – is calculated as a percentage of NNI at market prices. The result is then converted to days of the year, starting from January 1.

By way of comparison, Tax Freedom Day for US taxpayers arrived on April 14 this year – eight days earlier than it fell last year – according to the Tax Foundation, a non-partisan tax policy think tank.


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