The government’s revenue from taxes surged to an unprecedented level last year, bolstered by Labour’s increased levies on businesses that helped stabilize public finances.

Over the 2025-26 fiscal year, tax authorities amassed £938.8 billion, marking a £63.8 billion rise from the previous year. A significant portion, totaling £552.8 billion, was derived from income tax, capital gains tax, and National Insurance contributions (NICs).

This historic tax collection was partly attributed to a hike in employer NICs, a levy imposed on the earnings of employees that employers are required to pay.

In April 2025, Rachel Reeves increased this tax from 13.8% to 15%, while also lowering the threshold at which employers need to start paying NICs.

Additionally, Labour maintained a freeze on income tax thresholds, resulting in more individuals being pushed into higher tax brackets even when their salary increases merely kept pace with inflation.

This development coincides with public borrowing figures indicating that the increased taxes partially mitigated Rachel Reeves’ substantial spending efforts, with borrowing decreasing to £132 billion in the year ending in 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.’

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