U.K. Treasury to Raise £27 Billion More Tax Despite Sunak’s Tax Cuts

(Bloomberg) -- The U.K. Treasury will pocket about 27 billion pounds ($36 billion) more a year in revenue than previously forecast despite eye-catching tax cuts on pay announced in its Spring economic statement on Wednesday.

The figures, buried in documents from the Treasury and Office for Budget Responsibility, leave Chancellor of the Exchequer Rishi Sunak presiding over the highest tax burden since Clement Attlee’s Labour government in 1949.

The record gave lobby groups across the political spectrum ammunition to criticize Sunak’s handling of the public finances at a time when households are facing their biggest cost-of-living squeeze in at least three decades. 

“The Treasury is taking with one hand to give away with the other,” said John O’Connell, chief executive officer of the TaxPayers’ Alliance, a consumer pressure group. “Cutting income tax down the line will be easily offset by the upcoming national insurance hike and freezing income tax thresholds, leaving taxpayers out of pocket overall.”

In his statement to Parliament, Sunak increased the payroll tax threshold at a cost of 6 billion pounds reduced the basic rate of income tax to 19% from from 20%, handing households 5 billion pounds from the 2024-25 fiscal year. 

Despite the giveaways, Sunak will raise 7 billion pounds more a year from taxes on wages than previously expected, the OBR said. The independent budget watchdog also assumes solid growth in corporate profits, which will generate an extra 6 billion pounds a year on average compared with October. 

In addition, higher prices in the shops due to soaring inflation is set to add another 1 billion pounds in Value Added Tax receipts. Business rates generate a further additional 1.5 billion pounds a year.

Wages are now expected to rise by 5.3% this year, up from October’s forecast for 3.9%, which generates revenue and drags more people into bands where they pay higher rates of tax. Such fiscal drag generates 4 billion pounds a year alone more than forecast in October, the OBR said.

As a result, the overall U.K. tax burden rises further. The share of tax receipts as a portion of gross domestic product is on track to reach 36.3% in the 2025-26 fiscal year.

Lobby groups expressed disappointment that Sunak didn’t do more to help consumers with soaring energy bills or back off a tax increase that’s due to take affect at the start of April. Those measures are squeezing consumer finances and damaging confidence in the recovery.

The U.K.’s biggest business lobby group welcomed the tax cuts but said they “don’t do enough to tackle the current challenges facing firms,” according to Tony Danker, director general of the CBI. 

Trades Union Congress General Secretary Frances O’Grady said, “we did not get the urgent help with soaring bills that families need. The rise in the national insurance threshold will mostly benefit better off households.”

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