Have our Taxes Been Cut?

HMRC announced last week an increase in total taxes collected of £5.6 Billion for the period of April to July 2024 as compared with the corresponding 2023 period HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – GOV.UK (www.gov.uk) Total taxes collected are higher now than ever on record.

Listening to previous budgets we could have been forgiven for thinking that taxes had been cut, particularly given the ‘generous’ reduction in National Insurance rates. Taxes have been cut, right? Wrong. Beneath the surface lies a deeper truth behind the spin…

In percentage terms taxes collected have increase in total by just over 2%. If you had listened to recent Chancellor budgets you may have been expecting this figure to have reduced, but not so.

There are two major factors behind the increase in taxes collected over the period.

Firstly, and most obviously is an increase in business taxes of £2 billion, representing more than an 8% increase in business taxes collected. This is mostly a result of the increase in Corporation Tax rates from 19% to 25% (above small profits threshold) which are now taking effect and as were announced in previous budgets.

However, secondly, bubbling under the surface is the effect of fiscal drag. Fiscal drag is the effect created whereby income tax bandings are frozen and over time the effects of inflation in the economy overall push more and more people over the various tax bandings, and therefore start paying higher rates of tax. In fact the bandings have been frozen since 2021, and are set to remain in place until April 2026 as things stand.

Of course in mitigation to the above is the rate of inflation which had been around 3% (per ONS) between the two comparative figures used in the data released. However, suggestions of tax cuts don’t quite correlate with the figures announced.

With a new Government in situ and a budget scheduled for 30^th October 2024, amidst growing speculation of various tax rises how will future tax collection figures stack up?

See below condensed summary of tax collected per HMRC’s report. All figures below represent the 4 month period from April to July 2024. Comparative period figures in 2023 are shown in brackets:

Robin Maxwell

Robin Maxwell is a partner of Rogers Spencer and has been working with us since 2003. Robin specialises in Accountancy Solutions, Audits and Tax and VAT. Find out more about Robin here.