UK Tax Burden Rises Fastest Among G7 Nations, IMF Data Shows

Britain is raising taxes at a faster pace than any other nation in the G7 group of advanced economies, with the tax burden projected to rise to 41.9% of GDP by the start of the next parliamentary term, according to data from the International Monetary Fund (IMF).

This represents a significant increase from 38.2% at the beginning of 2025, a trajectory that places the UK alongside France as the only other G7 country expected to increase its tax burden. In contrast, countries such as the United States and Germany are anticipated to reduce their tax takes, and even economies that previously required bailouts, like Portugal and Greece, are planning to ease tax burdens.

Chancellor John Healey's upcoming budget is unlikely to offer relief to households and businesses, as sources indicate he has ruled out additional borrowing to fund any potential government spending initiatives. This suggests that any new spending will need to be financed through increased taxes or spending cuts.

Given the government's stated reluctance to reduce the benefits bill, the implication is that taxes will likely increase further, 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 urged Healey to consider a £12.5 billion tax increase targeting wealth, banks, and online retail to fund cost-of-living support measures.

The decision to avoid further borrowing was reportedly communicated to the Financial Times by individuals familiar with the budget planning as Healey prepared to attend the IMF's annual meetings in Bangkok. These sources indicated that Healey's proposals on October 28 would be "scorecard positive," meaning any new expenditures would be fully accounted for.

This approach aligns with IMF warnings to advanced economies against unaffordable spending on cost-of-living support, emphasizing that such increases must be "well funded" to maintain control over national budgets.

However, while this strategy might appeal to international financial bodies, it presents challenges domestically. The Chancellor's options are constrained by Labour's pledges not to raise income tax, corporation tax, or VAT. Furthermore, Healey has stepped back from proposals to align capital gains tax with income tax rates.

Roger Lee, head of equity strategy at Cavendish, a City investment bank, noted that these limitations leave "relatively small, targeted tax rises, potentially on banks, online betting and retail" as the most plausible avenues. He also suggested that income tax thresholds could be frozen again, potentially pushing more individuals into higher tax brackets.

Lee added that the Chancellor might opt to accept a reduced "headroom"—a buffer against fiscal rules—to accommodate spending increases. He concluded that the bond market is largely unavailable for substantial new borrowing, the economy has limited capacity for higher taxes, and there is little appetite for significant spending cuts, leaving the government with few fiscal options. Consequently, any budget giveaways are expected to be primarily for show and political expediency rather than substantive economic changes, potentially leading to a "do nothing" budget with delayed decision-making.