Productivity of tax collection in the UK, 1850 to 2019

Executive summary

What this research is about?

• This research estimates the productivity of tax collection and administration in the UK from 1850 to 2019. Currently HMRC is responsible for most of these activities, and before HMRC was formed in 2004 it was the job of Inland Revenue.
• Tax collection has been a government activity consistently since 1850 in the UK, unlike other things that the government has started doing over time. Studying tax collection productivity over the past 170 years thus gives an idea of total government productivity growth over that time.
• While the ONS produce statistics on the productivity of public services, they currently assume tax collection output is equal to tax collection input, and therefore productivity never changes. So this research will help economic measurement.

How did we do it?

• We used data from the annual reports of Inland Revenue and HMRC from 1850 to 2019, as well as data from the national accounts and other sources.
• We developed three different productivity measures, where the ‘output’ is tax revenue and the ‘inputs’ are the resources of the tax collection agency and the tax base (how much tax can legally be collected).

What did we find?

• Productivity of tax collection in the UK has increased by around 0.6% per year on average between 1850 and 2019, and by 0.9% per year on average between 1950 and 2019. This is less than the rate for the economy as a whole, but is clearly not flat.
• There is a considerable pick up in productivity growth from around 1984 onwards, which was when the Pay As You Earn income tax system was first computerised. The tax system has continued to get more digital since then.
• Using anecdotes from annual reports and other sources, we found evidence of regular innovation by Inland Revenue and HMRC, consistent with productivity growth over the long run.

Author Josh Martin