TaxPersonal TaxLies, damn lies and statistics…

Lies, damn lies and statistics...

'The tax burden peaked under the 1974/79 Labour government, fell under Lady Thatcher and is now set to go back to its previous late seventies peaks.' This apparently plausible statement suffers from only one drawback: it is completely wrong.

The tax burden is best expressed by the tax/GDP ratio, that is, the proportion of GDP taken in tax.

An analysis of Treasury figures shows the tax/GDP ratio averaged 35.5% during the 1974/79 Labour government (peaking at 36.8%) and averaged 37.1% under Lady Thatcher (peaking at 38.9%).

Between 1978/79 (the last year of the 1974/79 Labour government) and 1990/91 (the last year of Lady Thatcher’s government), the tax/GDP ratio jumped from 33.3% to 36.3%, a rise broadly equivalent to 10p on the basic rate of income tax.

The tax burden thus rose decisively under Lady Thatcher (both on average and in absolute terms), compared with the previous Labour government.

Turning to the current position, then in terms of Treasury forecasts, the tax/GDP ratio during Labour’s second term is set to average 36.9% assuming a full five-year term – slightly lower than the average under Lady Thatcher.

  • Maurice Fitzpatrick is Numerica’s head of economics.

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