Government Raises £77bn Revenue Despite NI Cuts

The UK government has successfully raised £77.2 billion revenue from Income Tax and National Insurance Contributions (NICs) since April of this year. The tax revenue increase is £2.8 billion higher than the same period last year. This surge in tax revenue comes despite reductions in national insurance rates. However, experts believe that the frozen tax thresholds played a key role in revenue collection.

How Are Frozen Tax Thresholds Impacting Revenue?

The Income Tax threshold is frozen until 2028, which means the personal allowance of £12,570 will not be raised for the next four years. As the wages of individuals rise, more people will fall into the higher rate tax brackets, ultimately increasing the government’s tax revenue.

A chartered financial planner explained that due to income tax allowance and threshold remaining frozen, the wage growth has caused many more people to pay higher Income Tax rates. Due to frozen thresholds, the government collected £20.6 billion of PAYE, which is almost £1 billion more than May 2023. This means that taxpayers are feeling the pinch, not just in their take-home pay but also in their savings, as higher earners’ personal savings are halved.

What Other Taxes Are Contributing to Revenue Increase?

Other than Income Tax, National Insurance (NI) has dropped by £1.3 billion in comparison to the same time last year. This is due to the NI cuts made by the Conservative government. Beyond the two major players in government revenue collection, other taxes are similarly contributing to the revenue collection.

Corporation tax increased by half a billion in the last year, reaching £3.04 billion in May 2024. Similarly, Stamp Duty Land Tax (SDLT) collection reached £2 billion, with over £1 billion collected in May alone. SDLT revenue saw an increase of £150 million increase from May 2023. This figure is despite a sluggish housing market in the UK. A mortgage relations expert claims that the temporary SDLT thresholds will expire in a few months, resulting in a lot more expensive housing market.

Inheritance Tax (IHT) also follows the same trend, with £1.4 billion raised in the first two months of 2024, which is £200 million more than the same period last year. IHT revenue has increased to £700 million in May 2024 in comparison to £100 million in May 2023.

Conclusion

The UK government has raised higher amounts of tax revenue this year in comparison to the same time last year. This is due to the dual effects of frozen thresholds and economic growth. Due to frozen tax thresholds till 2028, more people will fall into the higher tax bracket, leaving less money in their pockets and more in the hands of the government. As the general election approaches, changes in policies are likely to affect these figures more.