UK Faces Fastest Tax Hikes in G7, IMF Warns
Britain's tax burden is projected to increase more rapidly than in any other G7 nation, according to IMF figures, as the Chancellor signals further tax increases while ruling out increased borrowing.
Britain is set to implement the fastest tax increases among G7 nations, with the International Monetary Fund (IMF) projecting the UK tax burden to reach 41.9% of gross domestic product (GDP) by the start of the next Parliament. This represents a significant jump from 38.2% at the beginning of 2025, placing the UK alongside France as the only other G7 economy expected to increase its tax burden.
In contrast, countries like the United States and Germany are anticipated to reduce their tax revenues, and even Portugal and Greece are planning to ease tax burdens. This fiscal outlook for the UK comes as Chancellor John Healey prepares for a Budget that is unlikely to offer relief, having ruled out further borrowing to fund any potential spending measures. This decision implies that any government initiatives to support households facing a high cost of living will need to be financed through increased taxes or spending cuts.
Given the government's stance on not reducing the benefits bill, further tax increases are anticipated, adding to the £75 billion in tax hikes already implemented under the previous Chancellor. The Institute for Public Policy Research (IPPR), a left-leaning think tank, has suggested a £12.5 billion tax increase targeting wealth, banks, and online retail to fund cost-of-living support.
The decision to avoid additional borrowing was communicated to the Financial Times by sources close to the Budget, coinciding with Healey's attendance at the IMF's annual meetings in Bangkok. These sources indicated that the Chancellor's proposals on October 28 would be "scorecard positive," ensuring any new spending is fully funded. This aligns with the IMF's advisory against advanced economies spending beyond their means on cost-of-living support, emphasizing that such increases should be "well funded" to maintain control over overall budgets.
However, while these fiscal strategies might be viewed favorably by international financial bodies, they are likely to impose further financial pressure domestically. The Chancellor's options are constrained by Labour's pledge not to raise income tax, corporation tax, or VAT, and Healey's withdrawal from increasing capital gains tax to match income tax rates. Experts suggest that potential tax rises may be targeted at specific sectors such as banks, online betting, and retail. Another possibility includes freezing income tax thresholds, which could draw more individuals into higher tax brackets.
Roger Lee, head of equity strategy at Cavendish, noted that the government has limited fiscal room to maneuver. He explained that significant additional borrowing from the bond market is not feasible, the economy has limited capacity to absorb higher taxes, and there is little appetite for major spending cuts. Consequently, any fiscal giveaways in the upcoming Budget are likely to be primarily symbolic and politically motivated rather than substantive economic changes, potentially leading to a budget focused on maintaining the status quo with deferred decisions on key issues.