Adam Smith Institute: Tax Freedom Day is 1 June

Tuesday, 01, May 2007 12:00

Britain’s workers can breathe a sigh of relief today. For this is Tax Freedom Day – that happy point in the year when we have finally earned enough to pay off all our taxes, and can at last start earning for ourselves.

It might come as a shock that we have spent the last five months working solidly for the benefit of Gordon Brown and his colleagues at the Treasury, but that is the reality of it, says the Adam Smith Institute, the independent policy think-tank which calculates the date annually.

The Treasury will grab an amazing 152 days’ worth of what the average taxpayer will earn during the current year. In other words, more than two-fifths of an average earner’s wageslip is taken from them in taxes.

And the burden is rising. This year’s Tax Freedom Day comes two days later than it did in 2005, and more than a week later than in 2003.

Despite Gordon Brown’s many protestations of his ‘prudence’, the tax burden started to rise almost as soon as he got the keys to Number 11, growing to near-record levels in 2000-01. Rapid economic growth then saw wages rising faster than taxes, but over the last four years, the tax burden has begun to rise rapidly once more.

“When people joke that they spend as much time working for the taxman as they do for themselves, it is very nearly true,” says Adam Smith Institute Director Dr Eamonn Butler. “The time cannot be far off when a full half of everything we earn does indeed disappear in taxes – as it does in several countries in Europe.”

Fig1: How many days we work to pay tax?

Tax Freedom Day is getting later

Tax Freedom Day has got later as the Chancellor piles on more and more stealth taxes to feed a growing public sector. The tax burden in Britain has risen faster than any in Europe, to the point where we are now taxed more heavily than even the Germans. “This high tax burden must have a very bad effect on our international competitiveness and our ability to attract new investment and create new jobs,” says Butler.

When England won the World Cup back in 1966, Tax Freedom Day fell on 2 May. Now, Britain’s taxpayers have to work a whole extra month more for the Treasury than they did back then.

Even so, the Chancellor’s lavish spending plans are outstripping his ability to pay for them, and he has been forced into massive borrowing in order to plug his budget gap. So future taxpayers may have to face even bigger tax bills in the years to come. And this debt burden, calculates the Institute, is equivalent to an extra 12 days’ worth of our earnings – the equivalent of Tax Freedom Day falling on 12 June!

Complexity and stealth

The Institute believes that the growing complexity of the tax system under Gordon Brown has allowed the Chancellor to swell the Treasury’s coffers, because people cannot easily see how much tax they are paying – so-called ‘stealth taxation’.

This has left 9 out of 10 people paying more tax than they need – an average of £133 per head, according to Stephen Pratt, a Director of independent financial adviser Exclusive Finance, which sponsors Tax Freedom Day 2007. “A recent survey showed that many people thought their affairs were not complex enough to need financial advice. But if families attended just to their own Inheritance Tax liabilities, we could easily and cheaply save almost half of the £3.4 billion raised by this tax every year. For an investment of around £500, some families could save themselves £120,000!

Ian Sneath of Exclusive Finance added “Gordon Brown will be remembered for his stealth taxes, his raid on pensions being the most infamous, since only later have people realised how serious a dent it has left in their savings. Actuaries say that this alone has taken Britain from being one of the world’s best pension systems to one of the worst.”

America’s burden lighter, EU’s heavier.

Britain’s taxpayers have to work a month more for their government than those in the United States, where Tax Freedom Day fell on 30 April, according to the Tax Foundation, which calculates the date over there.

But one possible note of consolation for UK taxpayers is that things are even worse in the Euro area. International economist Gabriel Stein, who does the calculations for Tax Freedom Day, estimates that the citizens of the Euro area will still be working for their governments for another three weeks, until 20 June.

“Worryingly, the gap between Britain’s tax level and that of Euroland is narrowing,” says Stein. “That is partly because the British tax burden is risng and partly because the Euroland tax burden is easing. In recent years, Continental politicians, mindful of the competition from other, low-tax countries, have become convinced of the need to lower taxes themselves. Sadly, this is a lesson that British politicians of all stripes seem all too willing to overlook.”

…but there’s celebrating in Westminster

The Institute plans a party in Westminster to celebrate Tax Freedom Day, which it says should be made a public holiday. It is sending out balloons to mark the date, and is encouraging workers to send each other – and their MPs – an electronic “Happy Tax Freedom Day” from its Tax Freedom Day website.

The website – www.adamsmith.org/tax – reveals that income tax was introduced in 1799 as a “temporary” measure to fight Napoleon – at two-and-a-half per cent on incomes over £60. A year later, Parliament was complaining at the number of MPs who were declaring their income at just £59!

END

Notes for editors

1 The Adam Smith Institute is an independent market-economics policy think-tank. It has been publishing its annual Tax Freedom Day calculations since 1990.

2 The dates on which Tax Freedom Day has fallen over the last few years are:

1993 23 May 1998 29 May 2003 24 May

1994 24 May 1999 4 June 2004 26 May

1995 27 May 2000 4 June 2005 30 May

1996 26 May 2001 5 June 2006 1 June

1997 27 May 2002 27 May 2007 1 June

3 The date is calculated by comparing all UK taxes (income tax, national insurance, VAT, excise duties etc) against net national income.

4 To send a virtual “Happy Tax Freedom Day” card (This is a free service) go to: http://www.taxfreedomday.co.uk/happy-tfd.htm