Households across the UK are set to face a sustained increase in taxes, after the International Monetary Fund warned that Britain is on course for one of the sharpest rises in tax burden globally.
The IMF forecasts that taxes will reach 42.1 per cent of GDP by the early 2030s, the highest level in peacetime. The increase follows a series of measures introduced since Labour took office, adding up to around £130bn, or an estimated £4,500 per household.
For families already dealing with higher living costs, the figures are likely to deepen concerns about affordability. Tax rises in the UK are expected to grow significantly faster than in countries such as France over the next five years, bringing Britain closer to traditionally high-tax economies like Denmark.
Despite the higher revenue, the Government continues to face difficult choices over spending. A £28bn gap in defence funding has raised fresh questions about how ministers will meet a target of spending 3 per cent of GDP on the military.
There are also signs of disagreement within Labour over how to pay for it. Some figures have suggested cutting welfare spending, a move that could prove controversial among the party’s MPs.
Defence Secretary John Healey said the pressures were unavoidable, stating that the “demands on defence are rising” and that ministers would take “hard decisions when necessary” to strengthen the country’s armed forces.
He added:
“I would say to our own politicians in Parliament, as they say to the British public, that we know the threats that we face in Britain – and that we face together as Nato allies – are rising.”
Meanwhile, Chancellor Rachel Reeves has pointed to international events as adding to the UK’s economic challenges. Speaking in Washington, DC, she said that “the best economic policy now, not just for the UK but globally, is de-escalation of the conflict” in Iran, calling the war a “mistake”.
She also said:
“The war in Iran is not our war, but it will come at a cost to the UK. These are not costs I wanted, but they are costs we will have to respond to.”
However, critics argue that domestic decisions are also playing a major role, particularly as Labour had pledged not to raise taxes on working people. In practice, a number of recent changes have increased costs for both workers and businesses.
The debate over how to balance spending is continuing to intensify. Lord Robertson, who led Labour’s strategic defence review, warned of “corrosive complacency” over military funding, while others, including Baroness Harman and former chancellor Jeremy Hunt, have suggested changes to pension policy to help fund defence.
The Prime Minister has said the Government’s long-awaited Defence Investment Plan will be published “as soon as possible”, but has not given a firm date. There are growing concerns, including within Labour, about whether the UK is adequately prepared for rising global threats.
A senior government source said the plan had been delayed in part to avoid internal disagreements ahead of local and devolved elections on May 7. “No one really wants to take the big fight on this until after the local elections, because there are many MPs on the Labour benches who do agree with Lord Robertson,” the source said.
While work on the plan is believed to be complete, it has yet to be released as discussions continue with the Treasury over how increased defence spending will be funded.
For many households, the outcome of those decisions could have a direct impact on both taxes and public services in the years ahead.
