The UK government is projected to collect an additional £17.4 billion annually from income tax and national insurance by 2031. This increase, driven largely by frozen tax thresholds, is expected to push the national tax burden to its highest level since 1948.
The £17.4 billion revenue surge by 2031
Recent data from the Office for Budget Responsibility (OBR) indicates that revenues from national insurance and income tax will be £17.4 billion higher per year by the 2030-31 peirod than was previously estimated in March. This surge is described as a "stealth" raid because it does not involve raising the headline tax rates, but rather keeping the thresholds for those rates static while wages rise.
According to the report, the single most significant driver of this increased tax burden is the decision to freeze personal tax thresholds. As inflation pushes nominal wages upward, a larger portion of a worker's income is pushed into higher tax brackets, effectively increasing the amount the government collects without a formal legislative tax hike. Chancellor John Healey notably omitted mention of this specific revenue gain during his Budget presentation.
Why 215,000 workers may exit the labor market
The financial pressure of these frozen thresholds may have a chilling effect on the UK's productivity. The Office for Budget Responsibility warned that the combined effect of freezing thresholds for income tax and National Insurance Contributions (NICs) from 2022-23 through 2030-31 could result in a decrease in labor supply. Specifically, the OBR estimates a loss of 215,000 workers in average-hours equivalent (AHE) terms by 2031.
This trend reflects a broader economic risk where the marginal incentive to work additional hours or seek promotions is eroded by the tax man. When the state captures a larger slice of every single pay rise, the psychological and financial motivation for workforce participation diminishes. this creates a paradoxical situation where the government increases its coffers but potentially shrinks the very economic activity that generates that wealth.
A 38.6% tax burden: The highest since 1948
The overall tax take—the proportion of GDP collected by the government—is on a trajectory to reach historic peaks. As the report indicates, the tax burden is forecast to rise sharply from 36% of GDP in 2025/26 to 37.9% by 2027/28, eventually peaking at 38.6% of GDP in 2031/32.
To put this in perspective, this peak is nearly six percentage points higher than the 32.9% recorded in 2019/20, just before the pandemic. this trajectory represents the most aggressive tax-to-GDP ratio the United Kingdom has seen since records began in 1948, signaling a fundamental shift in the relationship between the British taxpayer and the state.
The double 2% hike on property and savings
Beyond the frozen thresholds,the government is implementing direct increases on investment income. Chancellor John Healey is raising the tax rates on savings and property income by two percentage points starting in April. This follows a similar two percentage point increase previously imposed by his predecessor, Rachel Reeves, which is scheduled to take effect at the same time.
While the OBR has provided the numbers on the revenue gains, several critical details remain unverified. It is currently unclear how the government intends to mitigate the projected loss of 215,000 workers, nor has there been a detailed breakdown of which specific income brackets will bear the heaviest burden of the property and savings hikes. Furthermore, the report primarily focuses on the OBR's projections, leaving the government's official justification for the "stealth" nature of these increases largely unanswered.
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