It's Cost of Government Day

Each year the Adam Smith Institute calculates Tax Freedom Day. It’s the day of the year when the average Brit has stopped working for the taxman and started working for themselves. This year it fell on May 29th (the latest it’s been since reliable records begin).

But so long as the Government runs a deficit (and according to the independent OBR they won’t stop until 2031), we’re merely storing up tax liabilities for future generations.

That’s why we also calculate Cost of Government Day, which just so happens to fall on today (21st June). For Cost of Government Day, we include deficit-financed government spending. That’s because when the government borrows money it must ultimately be paid for.

While Tax Freedom Day has gradually got later as the UK recovered from the financial crisis, the opposite has been the case for Cost of Government Day. It now falls 29 days earlier than it did in 2010, as the Government’s austerity plans have reduced the overall size of the state.

The gap between Tax Freedom Day and Cost of Government Day is narrowing too. Cost of Government Day came 65 days after Tax Freedom Day in 2010, but is only 23 days later this year.

As we always try to make clear, Cost of Government Day is a projection. If borrowing is lower than expected, as it seems to be, then Cost of Government Day may have come earlier this year.

But the prospects of Cost of Government Day continuing its downward trend seems unlikely with the Government announcing plans to increase NHS funding by £20bn. Whether it’s funded by higher borrowing or higher taxes it’ll mean the true Tax Freedom Day will come even later.