The government has borrowed record amounts of money during the pandemic and it now has the unenviable task of making inroads to paying off this huge debt burden. The Conservatives have already raised taxes significantly by freezing many tax allowances and reliefs for periods of up to five years while inflation is high. The Tories have become the highest taxing and spending political party in history.
It seems highly likely that the Labour Party will win the next general election. They will have no choice other than to hike tax rates considerably and I predict they will. Before writing this blog I did a little delving into the tax rates we paid when we last had a socialist Labour government, excluding the centre-right Blair and Brown New Labour period, and the results were shocking.
In the seventies, the top rate of Income Tax reached 98%. This was made up of a top rate of Income Tax of 83% and the Investment Income Surcharge of 15%. Corporation Tax reached a peak of 52%. After the Conservatives were elected in 1979 taxes fell considerably under the Margaret Thatcher reign.
Interestingly the record highest ever rate of Income Tax wasn’t in the seventies but during the Second World War under a coalition government when the top rate of Income Tax reached 99.25%!
Will we return to such high rates of tax? Probably not but I do expect tax rates to rise substantially in the future. It just seems inevitable whichever party is in power.
Whilst tax rates were higher in the seventies what isn’t always appreciated is that there was a far more generous regime of tax reliefs and allowances than those which exist today so the effective rate wasn’t as penal as it seems.
Personally, I’ve never liked big government nor high taxes but whichever party is in power that’s what we will have and it looks likely to continue in that way for the foreseeable future.
Income tax was announced in Britain by William Pitt the Younger in his budget of December 1798 and introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic Wars. This temporary tax still exists today.
I recently read a very interesting book entitled For a New Liberty: The Libertarian Manifesto by Murray N. Rothbard. He was an expert on libertarianism. I thought I knew what libertarian meant until I read this book. It was very enlightening. Rothbard explains that the libertarian view is that taxation is theft and advocates zero taxation and no government. Whilst he makes convincing arguments for libertarianism, in practice it is unlikely to ever happen so the concept of zero taxation is highly improbable. Nonetheless, his point of view is an interesting one.
So what can you do about the likely substantial rise in taxes in the UK? Well, a good starting point is to read my recent blog How to Avoid Tax in the UK. This blog is packed full of ideas on how to legitimately reduce your tax burden. You know it makes sense.*
The Financial Conduct Authority does not regulate taxation advice, estate planning or Inheritance Tax planning. The information provided in this article is for educational purposes only and should not be considered financial or investment advice. Please consult with a qualified professional before making any investment decisions. The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.