What’s happening to the ‘tax burden’?

Over the course of the election campaign we’ve heard Labour repeatedly claim that under the Conservatives the so-called ‘tax burden’ has reached the highest level in 70 years.

The Conservatives meanwhile have acknowledged the tax burden—which refers to tax revenue as a percentage of gross domestic product (GDP)—is high, but have argued that this is not the case for “low and middle income earners”. And talking about the tax burden during an ITV debate on 13 June, the Conservatives’ Penny Mordaunt claimed: “At the end of the next parliament on our plans, it will come down. Labour will take it to a record high.”

Here we look at what’s happened to the tax burden in recent years, how it could be affected by Labour and Conservative proposals, and why a high tax burden doesn’t necessarily mean everyone is paying more tax.

This explainer is one of several Full Fact is publishing ahead of the general election, exploring a range of topics which are likely to be of interest to voters. We’ll be updating these articles on a regular basis—this article was last updated on 20 June 2024 and the information in it is correct as of then.

The tax burden is high by historical standards…

We’ve seen several senior Labour figures claim that the tax burden is the highest in 70 years.

According to the Office for Budget Responsibility (OBR), the independent government economic watchdog, this was the case in 2022/23 when the tax burden reached 36.3%—the highest level since 1949 (when it stood at 36.9%) and the second highest since records began in 1948, when the tax burden was 37.2%. 

It’s since fallen slightly in 2023/24 to 36.1%. But current OBR forecasts—which are based on existing government plans—show the tax burden is set to increase in each of the next five years, reaching 37.1% in 2028/29. That would be the second highest level on record.

…but it’s forecast to increase by more under Labour’s plans

The main parties have now outlined their plans for the next parliament in their manifestos. 

Labour has committed not to increase National Insurance, VAT (other than removing exemptions for private schools), income tax rates or the main rate of corporation tax. 

It has said it would raise: 

• £1.2 billion on average a year over the next parliament by increasing the ‘windfall’ tax on oil and gas companies
• £1.5 billion a year by 2028/29 from removing VAT and business rate exemptions from private schools 
• £5.2 billion a year by 2028/29 from “closing further non-dom tax loopholes” and “reducing tax avoidance” 
• £565 million a year by 2028/29 from closing the “carried interest tax loophole” 
• £40 million a year by 2028/29 from “increasing stamp duty on purchases of residential property by non-UK residents by 1%”.

The Conservatives are proposing a number of tax decreases which they say will cost £17.2 billion a year by the end of the next parliament. The largest of these is their pledge to reduce employee National Insurance Contributions (NICs) by a further 2 percentage points by April 2027, which they say will cost £10.3 billion per year by 2029/30. 

They have also committed to abolishing self-employed NICs (which they say is worth £2.6 billion a year by 2029/30), increasing the personal allowance for pensioners (£2.4 billion a year), abolishing stamp duty for first-time buyers (£590 million a year), and reforming the high income child benefit charge (£1.3 billion a year). 

The Conservatives have also pledged to reduce tax avoidance and evasion, which they claim will raise £6 billion a year by 2029/30. The party’s manifesto commits to not increasing VAT, income tax rates, corporation tax, capital gains tax or stamp duty, or introducing “any new taxes on pensions”.

According to the Institute for Fiscal Studies (IFS), both Labour and Conservative plans would see the tax burden increase over the next five years.

Under Labour’s plans the IFS says the tax burden would increase at a slightly higher rate than under current OBR forecasts, reaching 37.4% by 2028/29. This would be the highest level on record.

The Conservatives’ plans would see the tax burden increase at a slightly lower rate than under current forecasts, reaching 36.8% by 2028/29. This would still be the third highest level on record.

What does this mean for ‘working people’?

Claims about the tax burden are often framed around the impact on workers. For example, in last week’s ITV debate, Labour deputy leader Angela Rayner claimed that “working people” have “the highest tax burden under the Tories”.

But the tax burden takes into account all tax revenue raised by the government—this includes direct taxes like income tax, employee National Insurance contributions and council tax, but also indirect taxes like VAT or fuel duty as well as those paid by businesses, like corporation tax.

Both the IFS and the Resolution Foundation think tanks have pointed out in recent months that the effective personal tax rate (focusing on income tax and NICs) for the “average earner” or “typical employee” is currently the lowest since 1975.

Since 2021, ongoing freezes to the threshold at which people begin paying National Insurance contributions and income tax have increased people’s taxable income, in what’s known as “fiscal drag”. But prior to that these thresholds had increased above the rate of inflation under the Conservatives, and for the average earner, recent reductions in the main rate of National Insurance contributions have offset the impact of the ongoing freezes.

The Resolution Foundation forecasts that over the next few years the effective personal tax rate for the average earner will increase slightly from the current rate, but will remain low by historical records.

However, as we’ve previously explained, taxes are increasing for some people—most notably pensioners, who have been impacted by the income tax threshold freeze but don’t benefit from the NICs reduction, and people on higher incomes. Overall, the net revenue raised from personal taxes is set to increase by £20 billion per year by 2028/29.

Image courtesy of Sarah Agnew