Overview
This report gives a high-level overview of tax policy across the period 2010 to 2024.
There are some clear distinctions between the governments before 2019 (including the coalition government of 2010–15) and the governments from 2019. Most notably, tax revenue as a share of national income was remarkably stable until 2019 but has increased sharply since and is now higher than at any point since 1948. There were also big swings in the direction of some major policies. The income tax personal allowance was increased for years before 2019 but is now on a declining path. The main rate of corporation tax was cut substantially until 2017 and then increased sharply in 2023. Rates of National Insurance contributions (NICs) continued their long-run upward trend until recently but have now been sharply reduced.
But there are also some common themes across the 14-year period. Overall, there has been a common trend towards increasing direct taxes on high-income individuals, while cutting them on low and middle earners. In fact, remarkably, despite the overall tax burden reaching historical highs, income tax and employee NICs now take a smaller fraction of the earnings of a single full-time median earner with no children than at any time for almost 50 years. Tax policy has been changed such that we are raising less on average earnings but more from higher earners, more from other taxes, and more overall.
Another common theme has been a move towards greater complexity. We have seen more than a dozen new taxes introduced since 2010, and many new rates and reliefs added to existing taxes. The tax code has never been longer. In general, this added complexity has not resulted in a tax system that is fairer or more economically efficient. In fact, despite all of the policy change, none of the major tax policy challenges that existed in 2010 has been substantively addressed. That is not to say that there have been no positive developments in tax design – there have been some welcome improvements in some areas. But these have tended to be small relative to the scale of the underlying challenges. Successive governments have missed opportunities to address poor tax design head on. Many of the tax policy challenges that were known about in 2010, including around how tax will adapt to addressing climate change, are now more urgent.
Key findings
1. Tax revenue as a share of national income was stable (at 33%) from 2010 to 2019 but is now 36% and rising. This is the highest tax burden since 1948. The parliament that started in 2019 saw the biggest rise in the tax take of any parliament in modern history.
2. Relative to 2010, more revenue is now being raised from income tax, VAT, corporation tax and capital taxes. Less is being raised from fuel and tobacco duties and business rates.
3. Big changes in personal tax thresholds have led to the share of adults paying income tax falling from 61% in 2010–11 to 58% in 2019–20 before rising to an expected 66% in 2028–29.
4. The share of over-65s paying income tax has risen rapidly from 48% in 2010–11 to 65% in 2023–24. For the first time ever, the share of over-65s paying income tax is higher than the share of working-age adults paying income tax (63%). This trend is due to the combined effect of relatively strong income growth among pensioners and the phasing-out of the (previously higher) pensioner personal allowance.
5. The number of people paying the higher or additional rate of income tax has more than doubled, from 6% (3.3 million) of the adult population in 2010–11 to 13% (7.4 million) now and is expected to reach 15% (8.7 million) by 2028–29.
6. Income taxes have risen at the top but been cut for most. The share of income tax paid by the top 10% of income tax payers has risen from 54% in 2010–11 to 60% in 2023–24. Income tax and employee National Insurance contributions take a smaller fraction of the earnings of a single full-time median earner with no children than at any time for almost 50 years.
7. There have been big swings in policy direction. Big reversals in the path of the personal allowance and the main corporation tax rate are two examples among many.
8. The tax system has become more complex. Governments have added new taxes and new differentiated rates, allowances and reliefs to existing taxes.
9. The tax gap – the gap between the tax HMRC actually collects and the amount it thinks theoretically ought to be paid – has been cut substantially. But HMRC’s customer service levels have reached an all-time low.
Further reading