Following the General Election, the next UK Government has now been formed.
Despite various campaign pledges around tax, expert opinion suggests that future rises are inevitable.
The inevitability of higher taxes
For the foreseeable future, the freeze on most tax thresholds is likely to remain in place.
The threshold freeze means that even moderate pay rises push taxpayers into higher tax brackets, effectively increasing their tax burden without any formal rise in tax rates.
This stems, not only from specific pledges of the main parties, but also from broader economic assumptions that have been made.
Many anticipated spending cuts have been factored into budget forecasts, which is likely to boost the Government’s need for higher tax revenues.
Without significant economic growth in the short term, the new Government will face a tough decision between making spending cuts or raising taxes.
The ‘trilemma’
Some people might wonder whether this situation can be avoided. However, as the Institute for Fiscal Studies (IFS) stated before the election, any Government would face the same ‘trilemma’.
Speaking to the BBC, Paul Johnson, Director of the IFS, said: “Huge decisions over the size and shape of the state will need to be taken. Those decisions will, in all likelihood, mean either higher taxes or worse public services”.
The IFS says that only three options exist for the Government: “Raise taxes by more than they have told us in their manifesto. Implement cuts to some areas of spending. Or borrow more and be content for debt to rise for longer.”
Preparing for the future
Regardless of the election outcome, tax liabilities look poised to increase – by how much is now the question.
As accountants, our role is to help you navigate these changes, ensuring you are properly informed, are well prepared and remain compliant.
Please get in touch for more information or tailored guidance on this issue.
