The madness of a state that spends more on welfare than it raises from income tax
If it were possible to buy Happy New Tax Year cards you’d surely find them stocked in the ‘With Sympathy’ section.
As of yesterday, the state has increased its demands on a host of taxpayers. Dividend tax is up two per cent for basic and higher rate taxpayers, with the latter now hit by a rate of 35.75 per cent. Entrepreneurs looking to sell business assets will also feel the pinch, with the tax rate on any gains up 4 per cent to 18 per cent thanks to the Chancellors changes to various forms of relief. The incentive to invest in venture capital trusts has also been eroded (do we really want to discourage this kind of investment?) while even working from home tax relief has had its day.
Anyone wanting to put all this behind them and escape for a few days will also find that Air Passenger Duty has also gone up, along with a variety of other costs from TV licences to utilities and council tax. But by far the most pernicious change concerns income tax and the impact of fiscal drag. More and more people will pay more and more tax thanks to the frozen thresholds.
Recession is looming, employers are nervous
You can almost hear Rachel Reeves saying “give me a break, I need the money.” And she certainly does. After all, thanks to Labour’s decision to end the two-child benefit cap, nearly 500,000 families with three or more children will now get an average rise in benefits of more than £4,000 a year, while more than 12 million pensioners will receive an almost £600 boost thanks to the triple lock – and all this has to be paid for.
But consider this: in the last financial year the government raised £331bn in income tax while spending £330bn on welfare. “The state is spending more on those not working than it raises from those who are” – as Annabel Denham recently put it. This would be an alarming state of affairs in the best of times, and we are far from the best of times. Recession is looming and businesses are nervous.
Amid all the gathering economic uncertainty, at a time that may prove to be the high point of Labour’s search for growth, the only predictable path this government offers is that taxes and welfare spending will continue to increase.
This article was edited on 14 May to correct an error: 2026 is not the first year in which welfare spending exceeded income tax receipts.