The UK government has reaffirmed its commitment to not increasing income tax, National Insurance, or VAT rates, despite facing significant financial pressures. The announcement comes as the government prepares for its upcoming budget, amid discussions about a potential £22 billion shortfall in public finances.
In the 2024/2025 financial year, the government is expected to raise and spend over £1 trillion—equivalent to £1,000 billion. To put this figure into perspective, this amount is enough to purchase the UK’s ten most valuable companies or roughly equates to £15,000 per person in the UK.
The majority of this revenue will come from taxation. According to the Office for Budget Responsibility (OBR), income tax will contribute approximately £303 billion, a significant portion of the government’s revenue. This figure is set to increase as income tax thresholds remain frozen until 2028, meaning more people will pay tax at higher rates as their wages rise. VAT, another major source of revenue, is projected to bring in £203 billion, while National Insurance is expected to generate £168 billion despite recent rate cuts.
Other taxes, including capital gains tax and stamp duty, are forecasted to contribute £115 billion. The OBR also predicts that the overall tax level as a percentage of GDP will rise to a post-war high of 38% over the next five years.
Non-tax revenue, such as student loan repayments, will also contribute to government funds. Social protection, including pensions and benefits, remains the largest expenditure, accounting for over a quarter of all government spending. The OBR anticipates this will reach £371 billion in 2024/25. Recent measures include restricting Winter Fuel Payments to those receiving means-tested benefits, expected to save around £1.5 billion annually. Additionally, the new full state pension will rise by £460 per year from April 2025.
Health spending, which has been rising due to the aging population and increased treatment costs, is forecasted to hit £251 billion. Education spending, which has been recovering since cuts in the 2010s, is expected to total £131 billion.
Interest on government debt is another significant expenditure, with the OBR predicting it will reach £109 billion in 2024/25. This represents a 50% increase in debt interest as a proportion of the economy since 2010.
As the government navigates these financial challenges, the decision to hold current tax rates steady may shape upcoming budgetary discussions and political debates.
