Britain is raising taxes at fastest rate in G7, says IMF - as Healey prepares further hikes after ruling out more borrowing to fund Budget giveaways

Britain is raising taxes more quickly than any other developed economy – as Chancellor John Healey prepares further raids on households and businesses.

Figures from the International Monetary Fund (IMF) project that the UK tax burden will rise to 41.9 per cent of gross domestic product (GDP) by the start of the next Parliament.

That is up from 38.2 per cent at the start of 2025 – the biggest jump among any of the G7 group of major advanced economies.

And it puts the UK in unenviable company alongside crisis-ridden France, the only other G7 nation expected to add to the tax burden.

Others including the US and Germany will trim their tax takes – with even the previously-bailed out economies of Portugal and Greece ready to ease back too.

And there is unlikely to be any let-up for Britain's beleaguered families and firms at the Budget – after it emerged that Mr Healey has ruled out any further borrowing to fund any Labour giveaways in the Budget.

That implies that higher taxes or spending cuts will need to take the strain in funding the government's plans to support households stung by the soaring cost of living.

And given the Prime Minister's reluctance to cut Britain's ballooning benefits bill, that is likely to mean taxes once again going up – adding to the £75 billion increases under previous Chancellor Rachel Reeves.

It came as the Institute for Public Policy Research (IPPR), a left-wing think-tank, urged Mr Healey to stage a £12.5bn tax raid on wealth, banks and online retail to pay for cost of living help 

The decision not to go for more borrowing was revealed to the Financial Times by sources with knowledge of the Budget, as Mr Healey headed for the IMF's annual meetings in Bangkok.

They said the Chancellor's plans on 28 October would be 'scorecard positive', meaning any extra spending would be fully funded.

It comes after the IMF warned against advanced economies spending money they could not afford on cost of living support, saying that any increases 'should be well funded' to ensure countries are able to keep a lid on overall budgets.

But while staging yet another tax raid to avoid borrowing may find favour with global finance bureaucrats, it will mean more pain at home.

And the Chancellor's options are limited, with Labour having pledged not to put up income tax, corporation tax or VAT and after Mr Healey backed away from increasing capital gains tax to the same level as income tax.

Roger Lee, head of equity strategy at City investment bank Cavendish, said: 'That leaves relatively small, targeted tax rises, potentially on banks, online betting and retail.'

There could also be another freeze in income tax thresholds resulting in more people being dragged into paying tax at higher rates, he added.

Mr Lee said the Chancellor could also choose to accept a lower level of 'headroom' – the buffer against meeting fiscal rules – to allow him to fund giveaways.

He added: 'Fundamentally, the bond market is effectively closed to significant additional borrowing, the economy has limited capacity to withstand higher taxes and there is little appetite for major spending cuts. That leaves the Government with very limited fiscal options.

'Any giveaways are therefore likely to be optically attractive and politically motivated, rather than substantive changes to the UK economic outlook. We could be looking at a 'do nothing' Budget combined with further can-kicking.'