- This year, the chancellor gobbles up the first 162 days of our earnings—from every source
Tax Freedom Day falls six days later as the state's share of the pie widens
- Lower taxes means stronger growth and higher living standards in the long run
Tax Freedom Day is a measure of when Britons stop paying tax and start putting their earnings into their own pocket. In 2017, every penny the average person earned for working up to and including June 11th went to the taxman—from June 12th onwards they are paying themselves.
Really, it's a bit more complicated than that. Firstly there is no average person—the UK does not have a perfectly proportional tax system so each individual's tax freedom day will be different—with higher income people typically being freed later. But this is not strictly accurate because the Treasury does not just tax income; it taxes property, transactions, consumption, investment, capital gains and so on as well.
Secondly, we measure the entire tax take, including those taxes that don't come directly out of earners' pockets. The incidence (a fancy economist's word for 'burden') of every tax eventually falls on households. Corporations cannot pay—they are legal constructs—only their shareholders, employees and customers. VAT raises consumer prices. Stamp duty land tax comes out of house prices, and so on. Households eventually pay every tax, even the ones they don't notice.
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.
Many of these figures are not available up-to-date for calendar years so they are proxied from government and OBR forecasts and financial year numbers. They are then revised when exact numbers become available. This means the Tax Freedom Day for a given year in the past may well have changed. However, the changes are usually very small, and the overall picture tends to be robust to these alterations.
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 above 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.
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As the graph above shows Tax Freedom Day in the UK fell steadily later in the year until the mid-1980s, hitting nearly 180 days (i.e. half way through the year) before steadily trending down in the earl 1990s, and finally bumping around mid-to-late May, or 150 odd days through the year. Since the recession it's trended into June, as austerity has bitten, and growth has been slow.
Cost of Government day is calculated similarly, but for total government spending over national income—i.e. including debt-financed government activity, which we must eventually pay, as well as tax-financed government spending.
It shows an even clearer trend: later and later during the 1960s and 1970s, then resolutely earlier under Thatcher. Later in the early Major years, but earlier under Ken Clarke's stewardship, then up under Blair and Brown. Finally, it trended many days earlier as austerity cut the state budget.