Government’s tax take reaches document excessive as Labour’s tax hikes on enterprise prop up public funds

The Government’s tax take reached an all-time high last year, as Labour’s tax hikes on businesses propped up the public finances.

The tax office collected £938.8billion in the 2025-26 tax year, which is £63.8 billion higher than last year. Of this, £552.8billion came from income tax, capital gains tax and National Insurance contributions (NICs).

The record tax take was driven partly by the increase in employer NICs, a tax paid by employers on employees’ earnings. 

Rachel Reeves increased the tax from 13.8 per cent to 15 per cent in April 2025, and also reduced in the level at which employers start paying NICs.

Labour also continued the freeze on income tax thresholds, which means more people are dragged into higher tax brackets even if their pay only goes up in line with inflation.

It comes as public borrowing figures showed that Rachel Reeves’ tax raids partly offset her spending spree, falling to £132billion in the 12 months to the end of March.

The Organisation for Economic Cooperation and Development (OECD) this week warned that Labour’s tax hikes were the largest in the developed world.

Stealth taxes: HMRC collected record taxes last year as Labour extended the freeze on thresholds

On top of changes to NICs, overall business taxes jumped to £101.4billion, from £97.5billion in the previous tax year, the highest on record. 

It lays bare the pressure heaped on businesses since the Chancellor’s first tax raid in October 2024.

And that’s before the Iran war threatened higher inflation and broader economic uncertainty, which are likely to push business costs even higher and threaten job losses.

Sue Robinson, head of employment tax at tax firm Ryan, said: ‘What the receipts don’t show is what’s happening to employment. Unemployment rose by 0.8 per cent over the past year, which equates to around 300,000 people losing their jobs. Some economists are forecasting unemployment to reach 2.1 million next year.’

The latest unemployment figures published this week showed the headline rate dipped to 4.9 per cent in February from 5.2 per cent, but the employment rate also fell and inactivity increased.

Robinson added: ‘Increased employer costs can’t simply be blamed on global headwinds when unemployment rises. Government decisions, specifically NIC rises, ultimately impact how many people businesses can afford to employ.

‘At some point, the Treasury needs to look at the unemployment data and ask honestly what role its own decisions have played in getting us here, and what it’s prepared to do about it.’

Inheritance tax receipts reach another record

Inheritance tax receipts reached £8.5billion in 2025-26, £200million higher than the previous year, marking another record high.

It is primarily driven by a freeze on the £325,000 nil-rate band and £175,000 residence nil-rate band, which are fixed until 2031, while property prices soar.

The IHT take is expected to continue to rise in the coming years as changes to agricultural property and business reliefs from this April will drag more people into paying the death tax. From April 2027, unused pension pots will fall within the IHT net.

This will ‘turbo-charge receipts for years to come,’ said Rachael Griffin, tax and financial planning expert at Quilter.

‘What was once seen as a tax on only the wealthiest families is now firmly a middle‑income issue. With thresholds frozen and further policy changes still feeding through, IHT bills are becoming harder to mitigate, making early planning and professional advice increasingly important.’

Capital gains tax receipts soared to £22.2billion, from £13.7billion in the previous tax year, making it the largest take on record.

Experts say that strong equity markets have played a part, but so too has policy. The annual exemption has been cut from £12,300 to £3,000, while CGT rates on shares and other investments rose from 10 per cent and 20 per cent to 18 and 24 per cent.

Griffin said: ‘That combination appears to have encouraged some investors to bring forward decisions and crystallise gains sooner than planned, boosting receipts this year. Whether this marks a new, structurally higher level of CGT revenue or simply a one‑off response to a policy shock remains to be seen.’