One of the interesting, but lesser-known, sets of statistics published by HMRC illustrate the direct effects of tax changes. Distributed quarterly, these estimate the impact – how much more or less tax would be collected – if a range of changes were made to the UK tax system. With so much interest focusing on the erosion of the UK tax base through factors as diverse as the rapid increase in the income tax personal reliefs, the rise of artificial intelligence and the declining rates of Corporation tax, it’s interesting to see what changes might produce big tax increases for the Chancellor of the Exchequer if he finds the Treasury hard-pressed after Brexit.
Here are a few examples from HMRC’s figures for 2019/20:
Increase basic rate of income tax by 1p: £4,450m
Increase 40 per cent rate of income tax by 1p: £1,050m
These are large numbers by any standard. A smaller but significant amount of tax would be collected from a totemically significant increase in the 45p additional rate of income tax:
Increase 45 per cent additional rate of income tax by 1p: £100m
Increase National Insurance main employee rate by 1 per cent: £4,200m
Increase National Insurance employer rate by 1 per cent: £5,700m
Increase corporation tax rate by 1 per cent: £2,400m
Increase corporation tax rate by 1 per cent over three years: £6,950m
Increase VAT rate by 1 per cent: £6,200m
Interestingly, the figures for environmental taxes demonstrate a relatively small contribution, which highlight that any significant increases in the future could be a political rather economic move:
Increase petrol fuel duty by 1 per cent change on petrol: £90m
Increase diesel fuel duty by 1 per cent: £180m
Increase the climate change levy by 1 per cent: £10m
Increase the carbon price support by 1 per cent: £5m
Increase the landfill tax by 1 per cent: £5m
So there you have it. By pulling relatively few levers in the tax-gathering machinery, whoever is Chancellor of the Exchequer after Brexit could readily raise more revenue. Of course, the problem with big, easy changes is that any move will hit key economic groups - whether it’s all taxpayers, higher earners or businesses? Depending on which route is taken and the subsequent political fallout, electoral disaster might follow. So, in reality, any new tax-raising measures are likely to reflect a combination of smaller changes in these areas, coupled with a host of detailed changes in other areas. That’s been the pattern of recent Budgets and there’s no reason to expect that future Chancellors will risk electoral popularity by bucking the trend.
For more information, please comment below or get in touch with George Bull.