The latest data from HMRC confirms that February 2022 was another bumper month for tax collections.
As he puts the finishing touches to his 23 March Spring Statement, the Chancellor will take comfort from the fact that total tax receipts for April 2021 to February 2022 are £659bn, which is £132bn higher than in the same period a year earlier. But will he use these bumper tax receipts to help struggling households?
The strong tax figures for February 2022 are led by three groups of taxes, each of which tells us something different about the UK economy.
Income tax, National Insurance and capital gains tax
February 2022 cash receipts from income tax, National Insurance and capital gains tax were £43.2bn higher than in February 2021.
The February 2022 increase in income tax and National Insurance receipts was driven by an estimated January increase of 1,350,000 paid employees. The significant growth in employment is a welcome sign that the UK economy is recovering after the pandemic. Median monthly pay also increased by 6.3 per cent compared with the same period of the previous year, suggesting that wage inflation has contributed to increased tax receipts.
VAT receipts for April 2021 to February 2022 are £150bn, which is £61.3bn higher than in the same period a year earlier. The comparison here is not representative due to payments deferred and received under the pandemic VAT payment deferment policy. Price inflation undoubtedly also plays a part in increasing VAT receipts.
Stamp duty land tax
Although the figures are much smaller than income tax, National Insurance and VAT, it’s worth noting that February 2022 stamp taxes receipts of approximately £1.8bn are the second highest monthly total on record. The highest monthly figure was approximately £2.1bn in December 2021. Suggestions that the property market in England might be stalling are clearly premature.
In crafting his Spring Statement, the Chancellor faces a dilemma. He is under enormous pressure to cut taxes in a way which helps families struggling with the cost-of-living crisis. On the face of it, the latest HMRC data provides support for those tax cuts.
However, despite his own tax-cutting instincts, the Chancellor has signalled his adherence to a fiscal discipline which requires spending to be brought under control before taxes are cut.
Drawing these threads together, the Spring Statement, which was to have been based on the economic and fiscal forecast to be published by the Office for Budget Responsibility, is becoming a major fiscal event.
The challenge for the Chancellor will be to please as many of his critics as he can, without losing his grip on fiscal discipline.
Popular measures would include raising the National Insurance lower earnings limit for employees. That would take the sting out of the Health and Social Care Levy which is subject to extensive criticism, notwithstanding its good intentions, even before it comes into force.
A windfall profits tax on North Sea oil and gas companies would also be popular. With many hydrocarbon-producing nations applying tougher taxes to the sector, such a levy would not leave the UK out of line and so unable to meet the objectives of the North Sea Transition Authority.
With UK taxes as a percentage of GDP currently running at levels not seen for 70 years, the Chancellor will be acutely aware that a form of fiscal fatigue is setting in, with worries about job security, rising bills, children’s futures, household debt and climate change troubling a huge number of people. Even if commitment to fiscal discipline leaves the Chancellor reluctant to defer more extensive tax cuts until nearer the next general election, he may try to remove some tax worries by, for example, pledging that there will be no wealth tax or no increase in capital gains tax rates during the life of the current parliament.