04/17/2024 | News release | Distributed by Public on 04/17/2024 03:01
Published on 17 April 2024
How do the UK's levels of tax and spend compare to other advanced economies?
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Yesterday, the IMF released its new medium-term forecast for the world economy and the outlook for the public finances of individual countries. We compare the situation in the UK with 36 other comparator countries1 and look at how things have changed since the turn of the century and what the outlook looks like going forward.
As shown in Figure 1 and Figure 2 respectively, the UK's total government spending as well as revenues are now closer to the average of the rest of the G7 as well as to the average of a broader set of 36 comparator countries than they were in 2001. Going forward, the UK is forecast to close the gap with the G7 average even further. This would leave government spending and revenues at a historically high level for the UK, but still a bit below the G7 average. And while we already spend the same as the average of a broader set of international peers, we will not tax the same even by 2029.
Figure 1. Government spending
Note: Unweighted average for other countries shown.
Source: International Monetary Fund, World Economic Outlook (April 2024).
Figure 2. Government revenues
Note: Unweighted average for other countries shown.
Source: International Monetary Fund, World Economic Outlook (April 2024).
We have shown that the UK's 2.5% of national income increase in revenues relative to the G7 average over the period from 2001 to 2029 would be much smaller than the 5.6% increase in spending relative to the G7 average. Put simply, our appetite to become a more average spender has not been fully matched by a willingness to become a more average taxer. This contributed to a substantial relative weakening of the public finances.
Figure 3. General government net debt
Note: Unweighted average for other countries shown.
Source: International Monetary Fund, World Economic Outlook (April 2024).
Public spending in the UK is now close to international comparators, but the relative increase in revenues has been smaller. Levels of spending and tax are never the whole story: successful fiscal policy will focus as much or more on other factors such as how to make public services more productive, and how to remove unnecessary harmful distortions from the tax system. All the same, known pressures on spending on areas such as health and social care are unlikely to abate any time soon. But the economic environment suggests that public debt will be even more difficult to sustain with the current levels of spending and revenues going forward.
The UK's per capita growth outperformed the average of other G7 countries from 2001 until 2019 despite being hit harder by the financial crisis. But the UK is now forecast to have the 7th smallest cumulative growth among the 37 comparator countries in the period 2019-2029. With low growth (and the era of very low interest rates seemingly having come to an end), much tighter fiscal policy is needed to get debt falling. After having already increased by more than any other comparable country - with the notable exception of Japan - the IMF forecasts the UK's debt to continue growing rather than to be stable or even decisively falling. If we want to spend similarly to other countries, we will need to tax similarly too.
In addition to the G7, these include the EU27, Iceland, Norway, and Switzerland, Australia, New Zealand, and South Korea.
Deputy Director
Carl, a Deputy Director, is an editor of the IFS Green Budget, is expert on the UK pension system and sits on the Social Security Advisory Committee.
Research Economist
Martin is a research economist at TaxDev and works on taxation in developing countries.
Senior Research Economist
Isabel works in the Healthcare sector, and on the public finances. Their research focuses on retaining and developing the NHS workforce.
C, Emmerson and M, Mikloš and I, Stockton. (2024). Spending as much as other countries but taxing less is unlikely to be sustainable [Comment] Institute for Fiscal Studies. Available at: https://ifs.org.uk/articles/spending-much-other-countries-taxing-less-unlikely-be-sustainable (accessed: 17 April 2024).
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