UK's Tax Burden Hits WWII Levels. Growth Forecasts Look Rosy.

A member of the government's own fiscal watchdog has broken ranks to warn that Britain's soaring tax burden – set to hit levels unseen since the rubble of the Second World War was still being cleared – could strangle the modest economic growth the country is banking on. Professor David Miles, who sits on the Office for Budget Responsibility's budget responsibility committee, used the phrase "uncharted territory" to describe where the UK tax take is heading, and suggested the OBR's own forecasts might be too rosy about the damage this could inflict. The warning carries unusual weight precisely because of where it comes from.

Budget watchdogs typically maintain a studied neutrality, issuing projections with caveats but rarely editorialising about their own numbers. When a committee member publicly questions whether the organisation's growth forecasts account for the economic pain of historically high taxation, markets and businesses should take notice.

According to the OBR's latest projections, the tax burden will climb to 38.5% of GDP by 2030/31. That represents an increase of roughly five percentage points since just two years ago – an enormous fiscal shift compressed into a remarkably short timeframe. To put this in context, the tax-to-GDP ratio stood at around 33% before the pandemic. Britain has added the equivalent of an entire Portugal's worth of tax revenue as a share of national output in less than half a decade.

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The marginal rate trap

Miles made clear his concern centres not just on headline numbers but on marginal tax rates – the percentage taken from each additional pound earned. This distinction matters enormously for economic behaviour. Someone facing a 60% marginal rate (which exists in certain income bands where personal allowances taper away) might decide that extra project, that overtime shift, or that risky business expansion simply isn't worth the candle.

If marginal rates rise further, or if lower rates climb to meet them, the result could really constrain growth

Speaking at a Resolution Foundation event this week, Miles outlined two scenarios. In the optimistic version, the Treasury manages to increase average tax rates without substantially raising marginal rates, preserving incentives to work, invest and employ people. The damage to growth would be "minimal" and perhaps even less than the OBR has already factored into its forecasts.

The pessimistic version? The UK already operates "very high marginal tax rates" in certain areas, Miles noted. If those rise further, or if lower rates climb to meet them, the result could "really constrain growth". What's striking here is that Miles isn't offering both scenarios as equally likely. His framing suggests genuine concern that Britain is sleepwalking into the pessimistic outcome whilst the OBR's models assume something closer to the optimistic one.

Forecasts already outdated

The OBR projects GDP growth of 1.1% in 2026 – down from the 1.4% forecast just four months ago – with modest improvements to 1.6% in 2027 and 2028. These are hardly numbers to write home about, even before questioning their achievability. For context, the UK economy grew at an average rate of 2.4% annually in the decade before the 2008 financial crisis.

The projections face another problem: they're already out of date. The forecasts were finalised before the recent Middle East energy shock sent oil prices climbing again. Fresh energy price rises feed through into inflation, which erodes real wages and squeezes household spending – the engine that accounts for roughly two-thirds of UK economic activity.

The living standards picture for the rest of the parliament is bleak

The Resolution Foundation characterised 2025/26 as a "bumper" year for poorer families, with wages and benefits rising above inflation. But Ruth Curtice, the think tank's chief executive, was clear-eyed about what follows: "The living standards picture for the rest of the parliament is bleak." The immediate uplift, in other words, represents a brief respite rather than a turning point.

The five-point question

The scale of the tax increase Miles referenced – five percentage points of GDP in two years – deserves more attention than it has received. A percentage point of GDP equals roughly £28 billion at current values. Five points, then, represents an additional £140 billion flowing from households and businesses to the Treasury annually.

That money has to come from somewhere. Either it's income that would have been spent in shops and restaurants, invested in equipment and training, or saved for retirement. Each of those alternatives creates different economic dynamics, but all represent economic activity that now won't happen in the private sector. The question Miles is posing, politely but pointedly, is whether the OBR's growth models adequately capture the drag this creates.

Chancellor Rachel Reeves insisted this week she has the "right economic plan", a phrase that has become something of a mantra for a Treasury facing multiple headwinds. But when your own fiscal watchdog starts publicly musing that its forecasts might be optimistic, the ground beneath that plan looks rather less solid.

The next 18 months will test whether Britain can maintain even anaemic growth whilst extracting more tax revenue than at any point since Clement Attlee occupied Downing Street. Miles has done the government the awkward favour of highlighting that the historical precedent for success here is, to use his word, uncharted. Businesses planning investments and households managing budgets would be wise to factor that uncertainty into their own forecasts.

More articles by Ross Williams