Tax burden up £23.5bn under Labour government, says PricewaterhouseCoopers

The figures come from a report by PricewaterhouseCoopers unveiled this weekend entitled: ‘Tax and spending under New Labour: the story so far’.

It uses a detailed analysis of the Treasury?s own figures to assess the impact of tax and spending changes since May 1997.

These figures show that there was a reduction in government borrowing of around 4% of national income (GDP) over the first two years of this Parliament due to a combination of a strong economy, increased taxes and very tight control of public spending.

During the ensuing three years, both total government receipts and total expenditure are projected to show a slight upward trend as a proportion of GDP.

For the Parliament as a whole, the report estimates that the total tax burden is set to increase by 2.4% of GDP from 35.3% in 1996/97 to 37.7% in 2001/02, while total managed expenditure will fall by 1.6% of GDP. These estimates assume no further changes in fiscal policy other than those already announced.

Looking at the figures in more detail, the report finds that:

of the overall 2.4% of GDP increase in the tax burden projected over the Parliament, only around 1.1% of GDP is attributable to discretionary tax policy changes in Gordon Brown?s first three Budgets, as opposed to fiscal drag and other effects arising from a strong economy;

in cash terms, the cumulative discretionary tax increase is projected to be £10.8 billion in 2001/02 compared with an indexed 1996/97 base; in terms purely of revenue raised, this is equivalent to an increase of around 4p in the basic rate of income tax, although the latter would, of course, have different distributional effects;

the discretionary increase in the tax burden has resulted from higher taxes on companies and their institutional shareholders (up by around £6.7 billion) and from increased taxes on expenditure (up by around £5.5 billion);

the net discretionary change in personal direct taxation (income tax plus employee national insurance) is projected to be close to zero over the Parliament as a whole, although a decline of around £1.4 billion is projected for 2001/2, largely because of the introduction of the Children?s Tax Credit in April 2001;

on present plans, health spending is set to increase by 0.4% of GDP (from 5.3% to 5.7% of GDP) over the Parliament, although this increase is entirely concentrated in the final three years of the period; in contrast, the increase in education spending over the Parliament is projected to be only 0.1% of GDP (from 4.8% to 4.9% of GDP); and

social security spending is projected to fall from 12.1% to 11.4% of GDP over the Parliament, but this decline is concentrated in the first two years and is largely attributable to falling unemployment; together with declining shares of GDP spent on defence (down from 2.8% to 2.2% of GDP) and debt interest (down from 3.7% to 2.9% of GDP), however, this allows additional resources to be redirected to health, education and capital investment during the last three years of the Parliament.

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