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Adam Smith Inst - Brits Spend Over 40% of the Year Working for the Taxman

Taxpayers worked 159 days for HMRC this year.

The 8th of June is the first day they start working for themselves. 

  • Tax Freedom Day falls on 8th June.
  • Brits work 159 days of the year solely to pay taxes.
  • UK Taxpayers will fork out over £869.4bn to the Treasury this year, 43.29% of net national income.
  • This is the latest Tax Freedom Day since reliable records began in 1995—and compared to earlier (less reliable) data it is the latest since the mid-80s. 
  • Cost of Government Day, which factors in borrowing as well taxes, is July 10th—almost a month earlier than in 2020 but 4 days later than last year.
  • MPs have provided comments in support of Tax Freedom Day, recognising the need to reduce the burden on people and businesses during a cost of living crisis. It is now incumbent on the Government to lower taxes to boost growth and investment. 

Tax Freedom Day is the day when Britons stop paying tax and start putting their earnings into their own pocket. In 2022, the Adam Smith Institute (ASI) has estimated that every penny the average person earned for working up to and including 7th June went to the taxman - from June 8th onwards they are finally earning for themselves. 

British taxpayers have worked a gruelling 159 days for the taxman before they can start earning for themselves.

Brit’s tax burden is moving in the wrong direction. Last year, Tax Freedom Day fell an entire week earlier. In the midst of a cost of living crisis, taxpayers are being burdened with even more obligations to HMRC. While the Government’s immediate interventions to help households through the crisis are welcome, the rising cost of living cannot be effectively tackled without a growing economy underpinned by low taxes. 

With current trends, we can expect Tax Freedom Day to continue to fall later in the year. Using OBR growth and tax revenue projections from March 2022, Tax Freedom Day is projected to hit June 24th by 2026: the latest since at least the early 1960s, according to historical data.

Dr Eamonn Butler, Founder and Director of the Adam Smith Institute said:

“If people were forced to work two full days a week for the Government, they would regard it as a form of serfdom. But that is what they actually do, as the Government takes over 40% of their earnings in tax, and then it borrows because it still can’t keep its book balanced.

All this taxation eats into our economic growth. It increases the risk of starting a new business or investing to expand an existing one, choking off the recovery we desperately need right now.” 

The Rt Hon Lord Frost said:

“Tax Freedom Day comes later every year, but a jump of a whole week shows just how much this Government has raised taxes in recent months. We need to reverse this trend urgently and get the British people working for themselves again, not paying more and more for an increasingly inefficient government."

The Rt Hon Penny Mordaunt, Minister for Trade Policy and Member of Parliament for Portsmouth North, said:

“To increase revenues and growth for the nation, cut taxes. To improve options and opportunity for individuals, cut taxes. To balance the state and generate wealth funds for future generations, cut taxes.”

The Rt Hon Mark Harper, Member of Parliament for Forest of Dean, said:

“A Conservative Government has a duty to keep people’s taxes low. It is incumbent upon the Prime Minister, as First Lord of the Treasury, to remember that he is meant to be a Conservative and to use our majority to govern as a Conservative - not letting spending get out of control and reducing the tax burden, not increasing it.

I pay tribute to the valuable work the Adam Smith Institute does in highlighting Tax Freedom Day and advocating the merits of free market economics in improving the lives of our constituents.” 

The Rt Hon Ian Duncan Smith, Member of Parliament for Chingfood and Woodford Green, said:

“These figures are a terrible reminder of just how much tax we already pay to the Government. The purpose of this Government should now be to reduce the overall tax burden to allow those who work hard for their families to keep more of the money they earn and give less to the Government. That is what real freedom means.”

Steve Baker, Member of Parliament for Wycombe, said:

“If it feels like Tax Freedom Day arrives later every year, it is because it does – even under Conservative Governments. We currently have the highest tax burden in 70 years. This cannot go on. Conservatives must stand up for the formula we have always believed in and recognise that you cannot tax your way to prosperity.”

The Rt Hon Damian Green, Member of Parliament for Ashford, said:

“One of the best ways to help people in a Cost of Living crisis is to cut the taxes they pay, whether personal taxes or the tax on goods and services. I urge this path on the Chancellor of the Exchequer.”

The Rt Hon Alun Cairns, Member of Parliament for Vale of Glamorgan, said:

“When public money is being spent or committed, we should always keep the date of Tax Freedom Day in our mind.  Unfortunately, the date is getting further away from January every year!  The public and press should use it as a standard measure of assessment.  

“Tax Freedom Day is a tangible reminder that nothing is for nothing.  It is hard to believe that until June 8th all our money has gone to the taxman! 

“There is a need to see this date earlier in the year.  This is something that the public would support strongly.”

The Rt Hon Sir Edward Leigh, Member of Parliament for Gainsborough, said:

“We need less tax-and-spend and more tax cuts. Conservatives should about empowering people. The best way to boost the economy is to let people spend more of their own money.”

John Baron, Member of Parliament for Basildon and Billericay, said:

“It should give a Conservative Government pause for thought that Tax Freedom Day is getting ever later and is now the latest for 40 years. Ministers from the Prime Minister down should be going for growth and cutting taxes – remembering the lessons of the Laffer Curve.”

Andrew Mitchell, Member of Parliament for Sutton Coldfield, said:

“As Conservatives we believe in keeping taxes as low as possible consistent with properly funding our great public services . 

But the inexhaustible pressure to spend more and tax more now requires a fundamental reassessment of our priorities . 

As a society we now have unrealistic expectations of what the State can feasibly deliver.”

Andrew Bowie, Member of Parliament for West Aberdeenshire and Kincardine, said:

“The fact that Tax Freedom Day is the latest it has been for 40 years should be of serious concern to the Government. If they are to fulfil their promise of driving down taxes, there is no time like the present to work on bringing it forward next year."

Greg Smith, Member of Parliament for Buckingham, said:

“That tax freedom day has moved later this year should be a wake up call for all conservatives. Our over riding imperative must now be to radically reduce the tax burden in the United Kingdom for individuals and business.”

Craig Mackinlay, Member of Parliament for South Thanet, said:

“With the tax burden at its highest for 70 years and the Treasury's insatiable appetite for additional tax revenues both from existing sources and newly devised ones, it is time we considered carefully whether an ever-expanding state is conducive to growth, entrepreneurial spirit and attractiveness to new UK inward investment. As Conservatives we lose sight of it at our political peril."

Andrew Lewer, Member of Parliament for Northampton South, said:

"It is a severe challenge to the core beliefs of most Conservative Parliamentarians to see Tax Freedom Day get later and later, especially after so many years of Government led by our Party. If this country is to move back into a sustained pattern of growth and improved productivity then this must change." 

Henry Smith, Member of Parliament for Crawley, said:

“Lower taxation increases economic growth and so actually also the amount of revenue raised to support public services; morally too, most people work hard and deserve to keep more of what they earn.

The fact that over half a year now elapses before we are in essence free of paying tax is not sustainable or right and we must rethink the effects of such a burden on individuals and our country.”

Adam Afriyie, Member of Parliament for Windsor, said:

“I strongly believe that individuals and their families are better placed than the Government to make financial decisions for themselves. This must start with lower taxation and reducing the burden on working people. I am encouraged by the work of the Chancellor on raising income tax thresholds. This is a step in the right direction but we must do more to allow workers to keep their hard earned money – especially low earners.”

Gary Sambrook, Member of Parliament for Birmingham Northfield, said:

“For most people their biggest expense each month is not their mortgage, their bills or childcare; it is tax. Today, 8th June, is Tax Freedom Day; the day on which the average person has made enough money to pay their taxes for the year. As a Government we need to do more to lower taxes which make us all better off.”

Alexander Stafford, Member of Parliament for Rother Valley, said:

“The Conservatives are the party of hard work, high growth, and low taxes. This Government understands that the only route to prosperity for the British people is a growing economy which enables individuals and companies to flourish. I welcome Tax Freedom Day and our Government’s plan for the high skill, high wage, low tax economy of the future.” 

Tom Clougherty, Head of Tax at the Centre for Policy Studies, said: 

“We are simultaneously experiencing the biggest rise in cost of living and the highest tax burden in a generation - as today, the latest tax freedom day in 40 years, illustrates. 

Add to this picture stagnating wages and sluggish growth, and something has to give. The government urgently needs to start reforming and cutting taxes. It's not enough to say you believe in a low tax economy; at some point you actually have to deliver.

'Hopefully next year we can celebrate Tax Freedom Day a little earlier.”

John O’Connell, Chief Executive at the Taxpayers’ Alliance said:

“It's not especially surprising that Tax Freedom Day has arrived a lot later this year. Politicians have imposed a 70 year high tax burden on businesses and families, with massive spending commitments causing a cost of government crisis. Spending restraint and tax cuts will give the economy space to grow and leave more money in the pockets of those who earned it.”

Chris Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs, said: 

“It is obscene that the average person has to work for nearly half a year to pay for the bloated, inefficient state. The NHS alone consumes one in every eight pounds, while one in nine of us is on a hospital waiting list. Britain is a high tax, low growth economy and will remain that way until a concerted effort is made to reduce the size of the state. Yet, the government shows little to no appetite to do so.”

Notes on Tax Freedom Day and methodology:

What is Tax Freedom Day?

Every year, the Adam Smith Institute calculates the number of days the ‘average’ person (more on that later) would have to work off to pay their taxes. This year, every penny the average person earned until June 7th went straight to the taxman. From June 8th (Tax Freedom Day) onwards the average person will get to keep every penny they earn. 

We calculate Tax Freedom Day each year to illustrate the true size of the tax burden once you factor in taxes from every source. 

Complications

While Tax Freedom Day is a simple idea in principle, in reality it’s a little bit more complicated. First, there’s no average person. Because we don’t have a proportional tax system, every individual will have a different tax freedom day. In theory, Tax Freedom Day will come later for high-earners and earlier for low-earners and the unemployed. In practice, this isn’t necessarily true because HMRC does not simply tax income, but also taxes consumption, investment and ‘sin’ activities at different rates.

Second, we measure the total tax take. This includes indirect taxes (such as VAT and Corporation Tax) as well as direct taxes (Income Tax and National Insurance). Economists distinguish between legal and economic incidences (a fancy economist word for ‘burden.’) The legal incidence of Corporation Tax may fall on individual firms, but corporations are artificial legal constructs. In reality, Corporation Tax is paid by people, the debate between economists is to what extent it falls between consumers, shareholders and workers. (Our paper Corporation Tax: Who Pays had a crack at the answer.)

Thirdly, we take into account depreciation and foreign investment earnings, as is standard around the world, measuring total taxes over net national income, not gross domestic product, so as to more closely approximate net wealth creation rather than economic activity. 

Fourth, tax receipts and net national income statistics are regularly revised by the Office of National Statistics and we revise past Tax Freedom Days along with them. Four years ago, the ONS made massive revisions to the net national income series. Irritatingly, as a result more reliable records now only go back to 1995.

Projections

The data for the most recent figures are not available up-to-date for calendar years so they are proxied from government and OBR forecasts and financial year numbers. They are then revised when exact numbers become available. This means the Tax Freedom Day for a given year in the past may well have changed. Typically the changes are very small, and the overall picture tends to be robust to these alterations. But over the past year, significant revisions to the net national income stats have pushed Tax Freedom Day back by around a week (we’re freer than we thought).

Tax Freedom Day (and its sister, Cost of Government day, which measures total spending over national income) is not meant as anything but an illustration—an indication of the size of the state. As the complexities details above suggest, it does not correspond exactly to any individual’s experience. And yet many people do find it shocking to see how large the state really is, expressed in an intuitive way.

If you want further info on methodology, feel free to call up the ASI on 02072 224995 or send our Head of Research, Daniel Pryor, an email at daniel@adamsmith.org.

Notes to editors:

For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 0758 477 8207

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Original article link: https://www.adamsmith.org/news/brits-spend-over-40-of-the-year-working-for-the-taxman

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