Tax Freedom Day: Tax Burden Is The Highest Since Current Records Began

Taxpayers worked for 161 days for the Taxman this year

Tax Freedom Day falls on the 10th June;

• This year, Brits are working 161 days solely to pay taxes, 4 days longer than last year;

• In 2019, before the pandemic, Tax Freedom Day was on May 22nd.

• UK Taxpayers will fork out over £998.6bn to the Treasury this year, 44.06% of net national income;

• Based on current Government taxation and spending plans, and OBR projections, the ASI expects Tax Freedom Day to hit June 22nd in 2028.

• Cost of Government Day, which factors in borrowing as well as taxes, is July 20th—the latest since the pandemic.

Tax Freedom Day is a measure of when Britons stop paying tax, and start putting their earnings into their own pocket. In 2024, the Adam Smith Institute has estimated that every penny the average person earned for working up to and including June 9th went to the taxman- from June 10th they are finally earning for themselves. 

British taxpayers have worked for a gruelling 161 days for the taxpayer this year, the latest since current records began. That’s 4 days later than last year, and 19 days later than before the pandemic. In 2009, Tax Freedom Day fell on May 18th- almost a whole month earlier. In 2010, it was on May 21st.

Tax Freedom Day takes into account the total tax burden. This includes both direct taxes (such as Income Tax and National Insurance) and indirect taxes (such as VAT and Corporation Tax). 

Britain’s tax burden has been moving in the wrong direction for years, and has now been made heavier by frozen income tax thresholds dragging Brits into paying higher rates of tax. 

The Adam Smith Institute is calling on politicians seeking election to be honest with the public about the size and nature of the tax burden on British taxpayers. 

James Lawson, Chairman of the Adam Smith Institute, said:

“High taxes don’t just eat into our pay packets, they hinder the UK’s economic prospects as a whole. They make starting or investing in a business more risky, and contribute to our stagnant wages, low productivity, and sluggish growth.

As the General Election approaches, politicians must be honest with voters about the size and nature of the tax burden. This includes frozen tax thresholds, which is dragging workers into paying high rates of tax, and increased taxes on businesses, the costs of which are often passed onto consumers and employees. 

Whoever wins on July 4th, they will need to grapple with the fact that Tax Freedom Day is getting later and later. But a government which finds ways to let people keep more of their own hard-earned money will be rewarded by the electorate.”

The Rt Hon Dame Priti Patel DBE, Prospective Parliamentary Candidate for Witham, said:

“Tax Freedom Day reminds us all that the overall level of taxation in the economy needs to come down so hard working families and businesses can keep more of what they earn. 

Over the last 14 years some targeted tax cuts have made a real difference. The freezes and cuts in fuel duty I campaigned for have helped the nation's motorists save thousands of pounds and the raising of the basic rate thresholds for income tax and national insurance have lifted millions out of paying tax on salaries and reduced the tax burden for many. But more needs to be done to cut taxes and reduce regulatory costs. 

I will always champion the Conservative values that promote low taxes and the economic freedoms our country needs to grow and secure its future prosperity and success.”

The Rt Hon Sir Brandon Lewis CBE, Former Member of Parliament for Great Yarmouth, said:

“Tax Freedom Day has been steadily going in the wrong direction now for a number of years.

We owe it especially to Britain’s hard-working young people to remove some of the financial burden on them by allowing them to keep more of the money they earn.

Manifesto week is an excellent opportunity for the Conservatives to demonstrate to voters that we are the party of aspiration and investment, through carefully thought-through tax cuts for both businesses and individuals. I hope my Party grasps the nettle.”

The Rt Hon Nadhim Zahawi, former Member of Parliament for Stratford-on-Avon and former Chancellor of the Exchequer, said:

“This long-running initiative by the Adam Smith Institute is a vital tool which holds politicians to account.

Tax Freedom Day has fallen far too late in the year, and we should be concerned that it is forecast to fall a whole 12 days later by 2028.

The Chancellor’s cuts to National Insurance and long-term ambition to abolish it altogether have already demonstrated that the Conservatives are committed to lowering tax. My Party should now capitalise on this, for example by abolishing the hated death tax, unfreezing tax thresholds, or lowering business taxes.”

Richard Tice, Chairman of the Reform Party and Prospective Parliamentary Candidate for Boston and Skegness, said:

“It is almost half the year before we start to keep what we earn, as the Tories have added 3 weeks to this Tax Freedom Day, of 10 June. 

Yet public services have got far worse proving wasteful spending.

Only Reform has a robust plan to cut out public sector waste, make work pay and encourage small businesses as the engine of growth for UK Plc”

ENDS

Notes to editors:

For any future details on the methodology, or to arrange an interview, please contact emily@adamsmith.org / +44 7584778207

The Conservative Party and the Labour Party were approached for comment. 

Methodology:

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 detailed below 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.

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 just 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.

Data Sources

Based on data availability, this year the ONS's NSRX was used for Net National Income and AHHY was used for Total Tax Take. This enables a TFD comparison going back until 1998, with a single consistent data source and methodology. 

Historic reporting of Tax Freedom Days may have been based on different data sources, or prior to ONS data revisions, so can appear earlier or later than in ASI's latest analysis. The Tax Freedom Day for a given year in the past therefore may well have changed - typically the changes are very small, and the overall picture tends to be robust to these alterations.. For the purposes of monitoring the trend of Tax Freedom Day and making inter-year comparisons, our latest analysis is most appropriate.

Also, Net National Income and Total Tax Take figures are not available up-to-date for the latest or future calendar years so they are proxied from government and OBR forecasts and financial year numbers. They are then revised when exact numbers become available in subsequent years.

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The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.

State Pension Could Go Bust As Early As 2035

• The Adam Smith Institute (ASI) built a new dynamic model which calculated when the State Pension could become fiscally unsustainable;

• The ASI defines this as the point at which the state will be spending more on welfare payouts, the greatest proportion of which is the State Pension, than it will be receiving in National Insurance tax receipts;

• This could happen as early as 2035. This is a crisis point for fiscal rules and Treasury spending commitments;

• The increasing unaffordability of the State Pension is in great part due to the ratcheting effect of the ‘triple lock’;

• In an accompanying research paper, report author Maxwell Marlow calls on the next government to urgently reform the State Pension; for example, through moving to a ‘double lock’ or smooth earning link, or by means-testing the State Pension. 

In 2021, the last time that it was measured, the State Pension had a total obligation to the British people of £8.9 trillion- three times the UK’s current GDP. This is set to balloon even further, due to the ratchet effect of the triple lock.

The State Pension is paid from current tax revenues, rather than from money set aside in a dedicated pot built up during a person’s working life. In fact, the average person born in 1956 will receive £291,000 more than they put in. This is creating an economic burden on working-age people.

This will be exacerbated by Britain’s demographic trends. By 2040, we are likely to have 22.7 million claiming the benefits including the State Pension (but only 34 million people of working age to fund it.)

The Adam Smith Institute’s dynamic model takes into account this demographic deficit alongside a number of other factors including, but not limited to, data from the ONS, OBR and HMRC, on population growth forecasts, State Pension contributions, workforce participation, and aggregate pay. It found that the State Pension could become financially unsustainable by 2035, meaning that the Treasury is spending more on welfare, the greatest proportion of which is the State Pension, than it is receiving in National Insurance tax receipts.

The author of the accompanying report, Maxwell Marlow, urges politicians to have a full and honest debate with the public about the future of the State Pension, and to consider a number of reforms, including means-testing the State Pension, transferring to a ‘double lock’ or smooth earnings link, and moving towards a Swedish-style pension system.

Maxwell Marlow, report author and Director of Research at the Adam Smith Institute said:

“It should alarm us all that the state pension could become fiscally unsustainable within the next 10 years.

Working-aged people are already taxed to the hilt in order to universally subsidise pensioners, and this inherent unfairness within Britain’s economy will only become more entrenched as our demographic deficit worsens. 

The government should look to review the state pension as a matter of urgency, either through means testing so that those with a net worth of more than £1 million are ineligible, or by moving to a double lock system to avoid the destructive ratcheting we see today.”

Notes to editors:

For further comment, or to arrange an interview, please contact emily@adamsmith.org / +44 7584778207

Maxwell Marlow is Director of Research at the Adam Smith Institute. 

The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.