Only one major country suffered a bigger tax rise than Britain last year

Jeremy Hunt - Zuma Press/Alamy Live News
Jeremy Hunt - Zuma Press/Alamy Live News

Britain's tax burden rose faster than France, the US, Italy and even several Nordic states last year as high earners were forced to hand more of their wages to the taxman, new analysis shows.

Taxes as a share of the economy rose by 1.4 percentage points to 33.5pc in 2021, according to the Organisation for Economic Co-operation and Development (OECD).

That was the biggest rise among G7 economies apart from Germany and was also a bigger increase than seen in Sweden, Finland and Denmark, which are traditionally high tax countries.

Britain's tax burden is now at its highest since 1988, the OECD said. The figures do not take into account Jeremy Hunt's decision to increase taxes for workers and businesses in the Autumn Statement to help pay for a bigger welfare state.

The Office for Budget Responsibility (OBR), the Government's tax and spending watchdog, has warned that the Chancellor's increases will push taxes to rates not seen since the Second World War when measured against the size of economic output.

While the UK's overall tax burden remains well below its European counterparts – France's tax-to-GDP ratio currently stands at 45.1pc and Italy's stood at 43.3pc in 2021 – the burden is expected to remain near record levels well into the next decade.

The OECD said the rise in Britain last year was partly driven by a 0.8 percentage point increase in revenues from personal income taxes, as fiscal drag saw more people pulled into higher tax brackets.

The OBR has previously noted that “almost all the rise” in personal tax revenues between April and December last year was driven by an increase in revenues from the 3.6 million taxpayers who pay either the higher 40p or top 45p rate of tax.

The increase in tax revenues from these employees last year accounted for half the growth in receipts, according to the OBR.

Around 3.3 million employees – or just over 10pc of the total workforce – paid the higher tax rate last year.

Britain’s tax burden has risen yet again since the period looked at by the OECD. The Chancellor targeted higher earners in the Autumn Statement, reducing the threshold at which the 45p is paid from £150,000 to £125,140. This will drag more people into the highest rate of tax and will mean these higher earners pay around £1,200 a year more in tax.

Tax burdens across the OECD also rose sharply. It said the average tax-to-GDP ratio rose by 0.6 percentage points in 2021, to 34.1pc. This represents the second-strongest year-on-year increase since 1990.