Tory public service pledges and corrective measures after austerity pushed tax burden up

Published

2 years ago

September 29, 2023

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The Institute for Fiscal Studies’ analysis that the UK’s tax burden is the largest since the Second World War puts into historical context what has been clear since Boris Johnson became prime minister.

Taxes have been rising sharply, either by stealth or declared policy, to keep up with election promises and demand for public services starved of investment during the previous decade.

Calculated as a share of GDP the tax take will have risen to 37% by the next election, a 4% increase since 2019 and a figure not seen since the 1940s.

By international standards, the UK taxpayer is not particularly heavily burdened. In Europe we pay more tax than Swiss and Irish citizens, but far less than the Germans, French and Scandinavian nations.

But historically this is a high, a reflection perhaps of the demands of an electorate that routinely says it wants to pay less tax (who doesn’t) but also wants high levels of public service.

While every one of the five Conservative chancellors since 2019 has consistently said they want to cut taxes they have done the opposite (with the exception of Kwasi Kwarteng, who was sacked and saw his plans abandoned three weeks after making them).

Increased government spending

The demands of tackling COVID-19 and the decision to bail out every household in Britain during the energy crisis have not helped keep a lid on spending and motivated some tax rises, but they are not, the IFS say, the largest drivers.

Rather it has been meeting pledges to spend more on the NHS, increase the number of police officers and so on, that have driven the tax take ever higher.

Rishi Sunak instituted many of the most significant while chancellor, and has rubber-stamped several more as prime minister. Corporation tax was increased from 19% to 25% this year, a measure announced by Sunak in 2021.

He was also responsible for the “stealth” element of our rising tax bills, the freezing of the thresholds for tax and National Insurance – the level at which we pay the various rates, which usually rise in line with inflation.

Wage inflation means many more people have been dragged into higher tax brackets, raising around £40bn for the exchequer, almost double the headline tax cuts announced at the last budget according to the IFS.

Windfall taxes on energy companies complete the set of measures that will amount to £100bn more in tax receipts than had the burden remained at the pre-2019 level of 33%.

The increases are also in large part a corrective to the austerity policies of David Cameron and George Osbourne, during which the UK tax take grew far less than in comparable economies also adjusting to the aftermath of the financial crash.

Given the IFS measures the tax burden as a percentage of GDP, delivering growth would be a way of cutting the tax burden.

That was Liz Truss’ plan, though the execution crashed the bond market and international confidence in the UK.

Some good news

There was a sliver of a glimmer of good news on that front with the ONS upgrading GDP in the first quarter of this year, and all of 2022 by… 0.2%.

The current Chancellor Jeremy Hunt said the revision “proved the doubters wrong” but while it is of course welcome, it’s not enough to change the overarching narrative of stagnant economic progress in the last decade.

Even if growth were revised upwards by 2% next year, the IFS says it would still leave the tax burden at 36.6%, an increase of 3.5%, still the largest since the 1940s.

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Trump fires tariff threats at more nations as EU ‘ready for all scenarios’

Published

5 hours ago

July 9, 2025

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Trump fires tariff threats at more nations as EU 'ready for all scenarios'

Donald Trump has revealed a list of more nations set to face delayed ‘liberation day’ tariffs from 1 August.

He has threatened tariffs of 30% on Algeria, 25% on Brunei, 30% on Iraq, 30% on Libya, 25% on Moldova and 20% on the Philippines. Sri Lanka was later told it faced a 30% duty.

Letters setting out the planned rates – and warning against retaliation – are being sent to the leaders of each country.

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They were the latest to be informed of the president‘s plans after Japan and South Korea were among the first 14 nations to be told of the rates they must pay on their general exports to the US from 1 August.

The duties are on top of sectoral tariffs, covering areas such as steel and cars, already in place.

Mr Trump further warned, on Tuesday, that a 50% tariff rate on all copper imports to the US was looming.

He has also threatened a 200% rate on pharmaceuticals and is also expected to take aim at all imports of semiconductors too.

The European Union, America’s largest trading partner in combined trade, services and investment, is expected to get a letter within the next 48 hours unless further progress is made in continuing talks.

The bloc, which Mr Trump has previously claimed was created to “screw” the US, has been in negotiations with US officials for weeks and working to agree a UK-style truce by the end of the month.

The EU has retaliatory tariffs ready to deploy from 14 July but it is widely expected to delay them until such time that any heightened US duties are imposed.

It remains hopeful of a deal in the coming days but European Commission president Ursula von der Leyen told the European Parliament: “We stick to our principles, we defend our interests, we continue to work in good faith, and we get ready for all scenarios.”

While the UK’s so-called deal with Mr Trump is now in force, it remains unclear whether steelmakers will have to pay a 50% tariff rate, deployed by the US against the rest of the world, as some final details on an exemption are yet to be worked out.

The rate is currently 25%.

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Nvidia wins race to become first $4trn listed company

Published

7 hours ago

July 9, 2025

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Nvidia wins race to become first trn listed company

Nvidia has become the first stock market-listed company to achieve a value of $4trn.

Its share price rose by more than 2% at the market open on Wall Street to reach the milestone moment.

It was achieved just over a year since Nvidia overcame the $3trn barrier and overtook Apple, in market cap terms, in the process.

The AI-focused chipmaker has been the darling of Wall Street for many years.

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The value of its shares has risen by 409,825% since its market debut in 1999.

Its status has been cemented thanks to the rush for AI technology – suffering several wobbles along the way – but nothing significant when you refer to the percentage rise of the past 26 years.

The most recent pressures have come from the emergence of the low-cost chatbot DeepSeek and concerns for global AI demand as a result of Donald Trump’s trade war hitting growth.

Financial markets have been taking a more risk-on approach to the trade war since the delays to “liberation day” tariffs in April.

It’s explained by a market trend that’s become known as the TACO trade: Trump always chickens out.

It has helped US stock markets post new record highs in recent days.

The wave of optimism is down to the fact that the president is yet to follow through with the worst of his threatened tariffs on trading partners.

Corporations are also yet to report big hits to their earnings – a fact that is also propping up demand for shares.

If Mr Trump does go all-out in his trade war, as he has now threatened from 1 August, then that $4trn market value for Nvidia – and wider stock markets – could be short-lived, at least in the short term.

But market analysts believe Nvidia’s value has further to go.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said of its meteoric rise: “Once known for powering video games, NVIDIA has transformed into a foundational player in AI infrastructure.

“Its high-performance chips now drive everything from natural language processing to robotics, making them essential to training and deploying advanced AI models.

“Beyond hardware, its full-stack ecosystem – including software platforms and developer tools – helps companies scale AI quickly and efficiently. This end-to-end approach has positioned Nvidia as a cornerstone in a market where speed, scalability, and efficiency are critical.”

He added: “The key question is where it goes from here, and while it might seem strange for a company that’s just passed the $4trn mark, Nvidia still looks attractive.

“Growth is expected to slow, and it’s likely to lose some market share as competition and custom solutions ramp up. But trading at a relatively modest 32 times expected earnings, and over 50% top-line growth forecast this year, there’s still an attractive opportunity ahead.

“For investors, it remains a compelling way to gain exposure to the AI boom – not just as a participant, but as one of its architects.”

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Greater risk to UK economy following Trump’s tariffs, says Bank of England

Published

8 hours ago

July 9, 2025

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Greater risk to UK economy following Trump's tariffs, says Bank of England

The future of the UK economy is weaker and more uncertain due to President Trump’s tariffs and conflict in the Middle East, the Bank of England has said.

“The outlook for UK growth over the coming year is a little weaker and more uncertain,” the central bank said in its biannual health check of the UK’s financial system.

Economic and financial risks have increased since the last report was published in November, as global unpredictability continued after the announcement of country-specific tariffs on 2 April, the Bank’s Financial Stability Report said.

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These risks and uncertainty, as well as geopolitical tensions, like the wars in Ukraine and the Middle East, are “particularly relevant” to UK financial stability as an open economy with a large financial sector, it said.

Pressures on government borrowing costs are “still elevated” amid significant doubts over the global economic outlook.

Had a 90-day pause on tariffs not been announced, conditions could have worsened, the report added.

The chance of prices rising overall has also grown as tensions between Iran and Israel and the US threaten to push up energy prices.

Possible higher inflation in turn raises the prospect of more expensive borrowing from higher interest rates to bring down those price rises. This compounds the pressure on state borrowing costs.

Mortgages

Borrowing costs for about 40% of mortgage holders are set to become costlier over the next three years as households refix to more expensive deals, affecting 3.6 million households, the Bank said.

Many homes have not refixed their mortgage since interest rates began to rise in 2021, meaning the full impact of higher rates has yet to filter through.

Those looking to get on the property ladder got a boost as the Bank said lenders could issue more loans deemed to be risky, meaning people could be able to borrow more.

Financial institutions can now have 15% of their new mortgages deemed risky every year, up from the current 9.7%.

Riskier mortgages are those with a loan value above 4.5 times the borrower’s income.

Be ‘prepared for shocks’

Despite the global and domestic economy concerns, the outlook for UK household and business resilience remained “strong”, the Bank said.

Investors, however, were warned that there could be “sharp falls in risky asset prices”, which include shares and currencies.

If there are any vulnerabilities in non-bank lenders, it “could amplify such moves, potentially affecting the availability and cost of credit in the UK”.

“It is important that in their risk management, market participants [people involved in investing] are prepared for such shocks.”

The steep market reaction following the tariff announcements in April “highlights that the interconnectedness of global financial markets can mean stress from one market can move quickly to others,” the report said.

Overall, though, “household and corporate borrowers remain resilient”, the Bank concluded.