Report warns the UK must move away from the ‘simplistic and pernicious tax cycle’

Britain needs to get rid of the ‘simplistic and pernicious cycle’ of promising tax cuts when in fact they are pushing for increases, according to a report.

The UK’s tax revenue will rise to £1 trillion in the coming years – and by 2027 the equivalent of £4,200 per household will have been added to bills, according to an analysis by the Resolution Foundation think tank.

It argues that the “complicated” system needs to be fairer to low- and middle-income families and transformed so that it helps rather than hinders economic growth.

The survey comes as the UK faces a rise in its overall tax burden to its highest level – as a percentage of GDP – since World War II.

Stealth tax increases mean millions of middle-income earners are being dragged into paying more, while corporate taxes have risen from 19 percent to 25 percent.

It all adds to the financial pain faced by families and businesses – already strained by rising costs and sharp increases in borrowing rates – ahead of the likely general election next year.

Higher tax rates were recently blamed on drug giant AstraZeneca choosing to build a factory in the Republic of Ireland rather than England, while oil and gas producers railed against windfall taxes on their industry.

Chancellor Jeremy Hunt has admitted the tax burden is too high, but is shying away from austerity at a time when the government’s priority is to tackle galloping inflation.

The Resolution Foundation document urges the government to ‘refrain from flip-flopping’, as when it cut and then raised corporate tax, and to ‘wish away problems’, such as the billions of pounds of fuel tax revenue which it will give up if it withholds tax on petrol and diesel.

It notes that tax receipts will rise from 33 per cent of GDP in 2009/10 to 38 per cent in 2027/28 – equivalent to £4,200 per household.

Many Tory MPs argue that cutting tax rates ultimately results in more revenue by encouraging more business activity.

Sir John Redwood, former trade minister, said: ‘We are asking too much and scaring people off, which is deterring investment.

Too many companies are going to Ireland, we have lost investment in the North Sea through taxes. We need rates where people stay and pay.”

Adam Corlett, chief economist at the Resolution Foundation, said: ‘UK taxes have generally jumped up and are likely to rise rather than fall in the future, despite the political rhetoric surrounding austerity.

But this rising amount of tax revenue has not been accompanied by an increasing quality of tax policy.

Resolution Foundation think tank report claims ‘complicated’ system should be fairer to low- and middle-income families

“There is no strategy behind a complicated system where some entrepreneurs don’t pay taxes on their profits, while some families have to deal with marginal tax rates of more than 80 percent.

Britain’s tax system needs to be completely overhauled so that it is aimed at helping rather than hindering economic growth.’

The report does not call for a reduction in the overall tax revenue collected by the government, but argues that the burden should be shared more equitably.

Controversially, it calls for a capital gains tax increase, though it argues that this should only apply to gains on a sale above inflation.