The U.K. government is considering reducing its unprecedented tax burden by cutting national insurance, according to treasury minister Jeremy Hunt. This move would lower the tax on workers’ wages, which is currently used to fund Britain’s welfare state. Hunt’s plans involve finding £9 billion worth of savings elsewhere to balance the books, potentially by increasing taxes on North Sea oil and gas companies, removing tax breaks for second homeowners, and scrapping the non-dom system.
Currently, British workers and self-employed individuals pay a 10% tax on weekly earnings ranging from £242 to £967, along with a 2% tax on earnings above £967 per week. On top of this, the U.K. income tax system charges citizens a 20% rate on earnings between £12,571 and £50,270, 40% on income between £50,271 and £125,140, and 45% on anything above £125,140 per year. The Chancellor of the Exchequer’s proposed cuts would further reduce national insurance payments after Hunt previously lowered the rate from 12% to 10% in November.
The government sees national insurance cuts as a more cost-effective and pro-growth approach to reducing the U.K.’s tax burden, which is currently at its highest level in 70 years. According to the Institute for Fiscal Studies, every 1p reduction in national insurance costs the government £4.5 billion in tax revenues, compared to £7 billion for every 1p reduction in income tax. This is because income tax is charged on various sources of income including savings, property, and pensions, while national insurance only applies to wages.
In terms of tax rates as a proportion of GDP, the U.K. ranks 16th out of the 38 countries in the Organisation for Economic Co-operation and Development (OECD), with rates of 35.3% of GDP. This is slightly higher than the average rate of 34.04% across the OECD. While the U.K.’s tax rates are generally lower than its European neighbors, they are higher than those charged by the U.S. and developed countries in Asia and Oceania.
When it comes to personal income taxes, the U.K. has the ninth highest rates among OECD countries, with average rates of 28.79% compared to the OECD average of 23.47%. Denmark has the highest taxes on personal income at 56.07%, while Costa Rica has the lowest rates at just 6.13%. In terms of corporate tax rates, the U.K. has a relatively low rate of 8.8%, which is below the OECD average of 10.23%.
Despite the increasing taxes on personal income, public perceptions of Britain’s public services have worsened. Polls from IPSOS Mori show that 78% of British people believe public services have deteriorated over the past five years.
In conclusion, the U.K. government is considering reducing its tax burden by cutting national insurance. This move aims to lower the tax on workers’ wages and balance the books. While the U.K.’s tax rates as a proportion of GDP are slightly higher than the OECD average, its personal income tax rates are among the highest in OECD countries. However, the country’s corporate tax rate remains relatively low. Public perceptions of Britain’s public services have declined despite increasing taxes on personal income.
