Britain’s tax burden is about to rise to its highest level since 1987

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LONDON — The UK’s tax bill as a percentage of national income is set to rise to the highest level since Margaret Thatcher was prime minister, according to a report from the Institute for Fiscal Studies.

The IFS said Chancellor Philip Hammond’s plan to raise an extra £17 billion in taxes by 2020 will see the burden rise beyond 37% of national income for the first time since 1987.

Hammond plans to boost tax revenue and cut spending to reach a self-imposed target of eliminating the budget deficit – the gap between public spending and income – by the end of the next parliament, which will most likely be around 2025.

But that goal looks ever more doubtful, and may have to be “consigned to the dustbin,” according to the IFS. Nearly seven years of the Conservative party’s spending cuts has made little impact on the health of the UK’s finances.

The deficit this year will be higher than in all but 13 of the 60 years before 2008, and remains the fourth highest of 28 advanced economies, the IFS said, adding that real spending on public services has fallen by 10% since 2009–10, the longest and biggest fall in on record.

The National Health Service has been hit hard. The five years from 2009–10 to 2014–15 saw the slowest growth rate in health spending since the mid-1950s, the IFS said.

“For all the focus on Brexit the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne,” Paul Johnson, the director of the IFS said.

“Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise. Even so the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament.”

It appears the government is relying on wage increases for top earners to balance the books and raise more tax. According to figures from the Office for Budgetary Responsibility in December, the number of people earning more than £150,000 ($189,452) will grow from 329,000 this year to 469,000 in 2021-22.

The proportion of taxpayers paying the top rate will increase from 1.1% to 1.5%, under the forecasts.

The government is seeking a 24% increase in income tax receipts during this time, of which half will come from the extra 140,000 people paying the top rate of tax.

A lot rides on the government’s ability to boost its tax income, with spending set to rise to cushion any potential economic hit from leaving the European Union. The OBR said that growth is set to slow during this parliament as a result of Brexit uncertainty, costing Britain an additional £58.7 billion.