Increasing Tax Burden in the United Kingdom: A Risky Maneuver?

The Office for Budget Responsibility (OBR) recently announced that the planned tax increase will bring in about 800 pounds per employee annually. This burden is expected to be largely passed onto employees through lower wages, despite a promise by the Labour Party to protect the working population. Forecasts indicate that the tax burden will rise to a record high of 38.2 percent of GDP, which could long-term increase both the size of the state and the tax burden beyond pre-pandemic levels. At the same time, the OBR warns of a two-year pressure on living standards, as the tax revenue from Ms. Reeves is expected to lead to a slowdown in wage growth. Real household disposable income (RHDI) is anticipated to be lower by early 2029 than projected by the conservative government in March. Ms. Reeves admitted that the OBR's growth forecasts did not meet her expectations, as the economy is expected to grow by 1.5 percent in 2027, compared to the 1.8 percent predicted in March. Nevertheless, she remains adamant and warns that it would be "irresponsible" to rule out future tax increases. This left its mark on the credit markets: 10-year interest rates rose to the highest level of the year as traders revised their expectations for rate cuts. Tory critics accused Labour of leaving the public unclear about their actual tax plans. Before the election, Sir Keir Starmer and Ms. Reeves repeatedly promised not to raise taxes for workers, particularly not the National Insurance. Rishi Sunak criticized Labour for breaking their promise. He emphasized that the last speech of the Prime Minister in the House of Commons had called for restoring trust in British politics, which had been forfeited by numerous broken promises. According to Paul Johnson from the Institute for Fiscal Studies, the tax increase on employers will ultimately affect working people. The 40.1 billion-pound tax increase is the largest since the OBR's records began in 1970. In addition to critical voices, Ms. Reeves also found support: she retained the Tory fuel discount and reduced the tax on draft beer. However, Stefan George Osborne warned that the spending increases, especially for the NHS and schools, could tighten budgets in a few years. These measures are primarily intended to support what some experts consider a necessary shift to a European model with higher government spending and taxes. In the end, it remains open how these measures will impact growth and public approval.