What does UK tax revenue tell us about economic growth and GDP?

One of the ways of measuring the economic output of an economy is to look at the tax revenue it raises. We do this because of the fact that there are a litany of weaknesses with the economic growth or GDP (Gross Domestic Product) numbers we receive. Only on Wednesday they received a critique from the labour market update where the employment situation was markedly different to the economic growth numbers. In the quarter just gone the extra hours worked (1.7%) far exceeded the economic growth of 0.5% which after the construction and industrial production updates is in danger of becoming 0.4%. So tax revenue received gives us a check on the state of play. If we look wider afield we see that one of the signs of the “lost decade” in Japan has been its inability to raise its tax revenue as the problems created by the latest Consumption Tax increase have shown.

Why this month?

January is the month in the UK when the self assessment forms have to be sent in by and income related  taxes paid. There will be some overflow to February for it all to be accounted for but we get a look at a sector which the official average wages figure ignore. They have a threshold of 20 employees and so miss smaller businesses and the growing number of self-employed which means that they are exactly what a data series should not be which is skewed and biased.

The pattern for Income Tax

If we look back we see that the employed or Pay As You Earn (PAYE) version of this generated receipts of £130.9 billion in 2008 tax year. If we compare like for like we see that it fell and  then bounced in 2011 but was then stable until 2014 when it rose to £138.3 billion and £145.1 billion in 2015. So we see some backing for the economic improvement from 2013 onwards although of course we have the issue that inflation has eroded this but pulling the other way has been the rise in the personal (tax-free) allowance albeit one offset somewhat but the failure to raise higher-rate thresholds. So the picture here is murky and hard to determine.

If we move to today’s numbers then again we get some backing for the UK economic improvement as the £12.33 billion of this January was a 5.4% rise on the £11.7 billion of the same month in 2015.

What about self-assessment?

Care is needed here as some of the money is recorded in February but today’s numbers did come with some disappointment.

Self-assessed income tax receipts increased by £0.2 billion to £12.4 billion in January 2016 compared with January 2015.

That is only a 1.6% rise and it is hard not to think of the increasing numbers of self-employed as I type this. After all on Wednesday we were told this.

self-employed people increased by 154,000 to 4.66 million

Care is needed as we are not comparing like for like as we do not have the January numbers here and it is not only the self-employed who are self-assessed. But a 1.6% rise seems a bit thin as we note an increase of 3% in their numbers. Have their wages fallen and if so what does that tell us?

So we have an odd picture here where the employed income tax numbers look excellent whilst – with caveat s- the self-employed ones are worrying and may show a decline.

Value Added Tax

This was suggested as an indicator in the comments section and the rationale behind this is simply that it gives us an idea of how much is being sold in the economy and thereby taxed.If we look back the picture is muddied by the changes in its rate but 2007 saw receipts of £92.02 billion to give you a sighter but for the reasons explained 2011’s £111.5 billion is more of a benchmark. We have seen a genuine pick-up here as 2013’s £118.2 billion was replaced by 2014’s £124.2 billion and 2015’s £128.4 billion. Perhaps the numbers are better than they look if we allow for a higher rates of avoidance and evasion in response to the rise to a 20% rate of VAT.

If we bring this up to date we see that VAT revenue is performing.

VAT receipts increased by £3.8 billion, or 3.7%, to £108.2 billion ( in the tax year to January).

This should not be a surprise as at the same time we received another excellent set of retail sales figures in the UK.

Year-on-year estimates of the quantity bought in the retail industry showed growth for the 33rd consecutive month in January 2016, increasing by 5.2% compared with January 2015.

The driver behind this has been the fall in retail prices which as I pointed out on the 29th of January last year has been an economic benefit.

Today I wish to challenge a piece of economic orthodoxy which is that lower prices are bad for us.

The 2.6% fall in prices over the year to January has been accompanied by the strong volume increase shown above. Also the 2.4% increase in spending (rounding means this doesn’t quite add-up) has fed into better VAT numbers helping the Exchequer. So far this tax year we have collected some £108.2 billion of VAT.

Stamp Duty on houses

Regular readers will be aware that it is my opinion that the Bank of England lit a fire under the UK housing market with its Funding for Lending Scheme in the summer of 2012. Thus we should see quite a pick-up in Stamp Duty receipts if the theory hold water. Well how does £6.7 billion in 2012 followed by £8.7 billion in 2013 and £11.1 billion in 2014 grab you? There was a slight fading in 2015 to £10.77 billion but it was still some 61% up on 2012.

I am not sure it could be much clearer and if other taxes had done the same we would be home and dry!


We find that the UK revenue numbers do provide a guide to what has been going on in the UK economy. We can see that whilst the medium-term picture is murky due to all the changes we see to be getting a solid increase now in both income tax (4.7%) and national insurance (3.5%) in the year so far. However whilst we only have a partial picture it looks as though the employed have been doing much better than the self-employed.

The VAT figures are more bullish in that they have a clearer rising pattern with the economic improvement and as they reflect the surge in retail sales seen in 2015 and so far 2016. It will not be too long before we find that reflected in the balance of payments numbers I suspect but enough of that for now. The clearest surge has come from Stamp Duty on houses! As Turkish pointed out in the film Snatch “Who da thunk it”

My musical summary comes from the delightful Sheryl Crow.

Everyday is a winding road
I get a little bit closer
Everyday is a faded sign
I get a little bit closer to feeling fine

Oh and as to the January Public Finances they appear to be a little better but it is hard to be clear as you see the expenditure figures have confused the concepts of up and down.

Number Crunching

We are regularly told that there is no inflation. Today I got news that my gym and track membership at (the public) Battersea Park Millenium Arena is rising from £28 to £30 per month or 7%. Whilst the Guardian reports quite a surge in Probate Fees.

The flat £215 fee will be replaced with a new system of tiered charges that would result in some paying as much as £20,000 for estates worth more than £2m.

For estates worth between £500,000 and £1m the new fee will be £4,000, rising to £8,000 for those worth between £1m and £1.6m, and £12,000 for those valued at between £1.6m and £2m.



22 thoughts on “What does UK tax revenue tell us about economic growth and GDP?

  1. “Today I wish to challenge a piece of economic orthodoxy which is that lower prices are bad for us.”
    It’s very simple.
    The public is used to inflation. The public is used to temporary supermarket price cuts. TPTB keep forecasting that inflation is just around the corner. The public spends, “before prices go up again.”

    • Hi therrawbuzzin

      That is a rather subtle theory and I like it! Too subtle for the central bankers who with their promises of future inflation are thereby undermining their own efforts. get in whilst you can is what we are supposed to be doing in housing and equity markets whereas we are consuming more. Oh what a tangled web…

  2. The Probate fee increase is a disgrace. Fees are precisely that, fees, not taxes.

    Estates are already taxed by IHT, (remember, the one Major wanted to abolish so “wealth could cascade down the generations…..”!), which is an immoral tax, unless wealth accumulation is to be discouraged.

    The reality is that Osborne’s stewardship of the economy hasn’t produced the revenue he expected, or forecast, and he is desperate for money, from anyone, anywhere.

    • Hi mickc

      It reminds me that the two things which get us all “death and taxes” can come as a combination. Also back in the day I do recall that moves like this were the cause of the English Civil war as a King desperate for cash taxed everything he could find, if my memory serves me right including a tax on windows.

      As to the fee increase itself it does resonate strongly with me having sorted out my late fathers affairs a year or so ago. There are plenty of bills to pay and they mount up and some are fair for the church for example,funeral directors and crematorium. But it mounted up to a tidy sum which now would be much too low for pretty much anyone with a house in the South East. As you say it is already taxed as well with IHT.

      But like the Sugar Tax they are on the case as you say…

  3. Hi Shaun

    Great article as always.

    Similar to your gym fees, I’ve started to notice the insidious effects of inflation creeping in again. Car parking rising from £3 to £4. Insurance tax raised from 6% to 9.5%, and now stamps rising by 1p.

    The government seem to think cheap food is a bad thing, and are desperate to raise prices by starting a sugar tax. Obviously a revenue earner and not for health reasons, and will inversely impact the lower social demographic.

    Is govenment spending still rising btw?


    • Hi Anteos and thanks for the examples which only reinforce the theme, especially the postage stamp prices rises as it was not so long ago they really shot up.

      It is an establishment thing to press the inflation button, and then they try to claim it as growth. As you say cheap food is in the firing line except tonights EUCO banquet will be free for the establishment.

      “artichoke with goat’s cheese and rocket, fillet of veal with tarragon jus, wilted spinach and polenta Passion fruit bavarois” I am somewhat unclear how that is British!

      Yes it is but my point at the end was that the ONS had confused increased with decreased in January. The tax-year so far is as follows.

      “Central government expenditure (current and capital) for the financial year-to-date (April 2015 to January 2016) was £574.0 billion, an increase of £4.9 billion, or 0.9%, compared with the same period in the previous financial year. “

      • “artichoke with goat’s cheese and rocket, fillet of veal with tarragon jus, wilted spinach and polenta Passion fruit bavarois” I am somewhat unclear how that is British!
        We import all of them; that’s the British way!
        Have you not seen our BoP deficit?

  4. Other increases:

    Council tax is rising by 4% in Wiltshire. I don’t know about anywhere else.

    The going rate for childminding is apparently around £9 per hour. In the early 90s when I did it for a while I charged £12 per day! A huge increase over the years and many childminders have priced themselves out of a job I should think.

  5. Hi Shaun

    What I find interesting about your blog is how it focuses on statistics releases and sets one thinking.

    With regard to the income tax receipts I would mention two things: population and fiscal drag. We have a larger population which would account for at least some of the increase and there is also the element of fiscal drag which you do mention but which might in fact be significant; several hundreds of thousand have been drawn into the upper tax brackets in the last few years.

    The self employment figures as you say are increasing and may take some shine off the receipts.

    As regards VAT this to me is not good news as it means that the economy is ever reliant on consumption, particularly as we also have an uptick in unsecured lending, indicating that our problems may be getting worse not better. We appear to be able to lead the World in shopping but very little else but for how long.

    I have to confess that with many global indicators going South at an increasing rate I am sceptical about any good news coming out of the British economy as portraying it as a beacon of growth and dynamism. It is over indebted, underproductive and over financialized; in other words it is weak and vulnerable and, at this juncture, I tend to interpret any “good” news as “noise” and little else.

    • Hi Bob J

      You are right to point out that the individual income tax experience is likely to be worse than the aggregate one via a higher population. Also the larger population will tend to push public expenditure higher.

      As to the economic outlook for the world there are issues there as the benefits of the lower oil price fade. For the UK we have insulated ourselves for a time via the higher consumption showed by today’s retail sales numbers. But the insulation may prove to be rather expensive for the trade figures which will pick this up eventually.

  6. Great blog as usual Shaun. With regard to stamp duty, as you said, receipts were down in 2015; this was due to legislated changes in the rates. This has dragged down the pilot quarterly consumer price series for owner-occupied housing based on a net acquisitions approach but it means that we should see higher annual rate of inflation for 2016Q1 than for 2015.
    The RPI and RPIJ should include stamp duty but don’t. Since the RPI is no longer a national statistic, the ONS doesn’t want to make any more reforms in it. It should at least be adding stamp duty to the RPIJ series, but it doesn’t seem to be interested in doing that either. I believe that we are both in favour of John Astin and Jill Leyland’s proposal for a household inflation index but I believe the path to it leads through incremental improvements to the RPIJ (or the RPI if one is a partisan of the Carli formula). I doubt that it is productive to just let the RPI and RPIJ vegetate hoping that the ONS will suddenly be so overwhelmed by the weight of logic that it decides to move to an HII all at once. Not many national statistical institutes operate that way.

    • Hi Andrew and thank you.

      As to the RPI I think they are trying to get it to “wither on the vine” but not updating it and later claiming it is out of touch. Very wrong but that is sadly the game. You also remind me of an incentive to increase the Council Tax relating to Jan’s comment which is that the CPI ignores it.

      As to Stamp Duty yes you are right but we may see a pick-up in the early part of 2016 ahead of the spring changes.

      Meanwhile the humble Cauliflower seems to be creating a stir in your home country.


      • Thank you for the link, Shaun. You are the best! I have corresponded with Luke Kawa, the author, a bit. He is a very bright guy and one of the best commentators on the Canadian economy. Luke didn’t mention that fresh vegetable prices, unadjusted for seasonal variation, rose by 9.7% in January, making them the largest contributor to the 0.2% monthly inflation rate. For glass-half-full types, the headline inflation rate is at 2.0%, the core inflation rate is at 2.0%, so everything is on target. However, the annualized three-month rate of change in the seasonally adjusted CPI, a better indicator of recent developments than the headline rate, has been marching up steadily: 0.0% in October, 0.6% in November, 1.6% in December and now 1.9% in January. (StatCan used to publish this useful indicator, but it is easy enough to calculate from the seasonally adjusted series.) The trend is not a friend for Governor Poloz.

  7. Osborne will be hoping that Blood, Sweat and Tears are wrong about stamp duty, “What goes up must come down, spinning wheels spinning around”

  8. Hi Shaun, vaguely connected to your chosen subject I feel that we should pay equal attention to GDP and tax revenues as it is the tax revenues that are the “income” of the Government and therefore used to finance national debt.

    Of course if we did that mass panic would ensue as the income/debt ratio would, I guess, dwarf the worst example anyone could uncover in the housing market about which everyone continually complains.

    • And on another note I see the rewards for failure continue in the establishment looking at today’s announcement by the IMF.

      • Hi Noo2

        Yes some of the toadying was of the Toad of Toad Hall variety.

        Valdis DombrovskisVerified Charleroi, Belgique

        Congratulations Christine @Lagarde on the 2nd term at the Head of #IMF. Strong partner, solid leadership and problem-solving skills

        Er Greece,Ukraine…..

        She even had the cheek to lecture Ukraine about corruption the other day! Meanwhile Xinhua news was not so complimentary pointing out there was only one candidate.

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