The UK started the 21st century with an overall budget surplus: the government raised more in revenues than it spent. It had a much smaller state in terms of tax and spend than many other comparator countries and one of the lowest levels of government debt. Since 2001, the size of the UK’s state (measured as public spending as a fraction of national income) has moved closer to the average of comparator countries. New IMF forecasts suggest that over the period since 2019 the UK will have had the biggest increase in revenues out of 37 comparator countries. Despite this, the increase in revenues since 2001 has not kept pace with the UK’s increase in spending. In other words, although the UK now looks like an “average country” in terms of how much it spends, it still raises less than an average amount in tax.
Since 2005 this has led to consistently above-average public borrowing and a massive increase in government debt that is second only to that seen in Japan. With comparatively much weaker expected growth going forward, this situation leaves the UK’s public finances in a relatively fragile position, and whoever is Chancellor after the next general election will have to make some difficult judgements. In particular, for the UK to maintain spending levels that are more average compared to other countries, it will likely need to tax more like them too.
