Up to two million people could leave the UK workforce if taxes continue to rise over the coming decades, an official analysis from the Office for Budget Responsibility (OBR) shows.
But economists have stressed the number is based on a long-term hypothetical scenario and extreme circumstances, rather than a forecast.
The warning stems from the OBR’s latest fiscal risks report, which models what could happen if income tax thresholds continued to be frozen for decades while earnings kept rising.
Under that scenario, growing numbers of workers would be pulled into higher tax bands through fiscal drag, potentially reducing incentives to work, remain in the UK or save.
The OBR estimates that, if such a policy were maintained unchanged until 2075, labour supply could fall by around two million people.
Economists emphasised that the exercise is designed to test the long-term consequences of an extreme policy assumption rather than predict what will happen.
David Miles, a member of the OBR's budget responsibility committee, said freezing tax thresholds may appear politically easier than raising headline tax rates but would carry significant economic costs over time.
“It would be painful, because... if you carry on doing that decade after decade, it isn't too far down the road until the great majority of people are higher-rate taxpayers,” he said.
He added that such a shift would affect people's “willingness to work, willingness to stay in the UK [and] to save, to pay taxes if income tax rates rose by that amount. So it's not a painless road to go down”.
William Ellis, senior economist at the Institute for Public Policy Research (IPPR), cautioned against interpreting the figure as an OBR prediction.
“The two million jobs lost figure is a 50-year hypothetical, not a forecast,” he said. “It assumes a single tax policy runs unchanged for five decades. Testing extremes like this is exactly what the OBR should do, but in reality, the government would step in long before this.”
He added: “The OBR is also clear that debt stays broadly stable this decade on current plans, which is why both the government and Andy Burnham are right to have committed to the fiscal rules. The long-term challenge the OBR highlights isn't just about tax and spend – fixing it means investing to tackle the pressures at source: an ageing population, ill health, weak productivity and climate change.”
Joe Nellis, economic adviser at accountancy firm MHA, said the report highlighted structural pressures facing future governments rather than the consequences of any specific policy programme.
“Fears are growing that substantial tax rises will be unavoidable if Andy Burnham becomes the next prime minister. But in reality, the OBR's analysis reflects inevitable long-term structural challenges facing whoever is in government over the coming years,” he said.
“All future governments will have to deal with the surging costs associated with an ageing population, rising healthcare costs and growing pension commitments. The suggestion that two million people could eventually leave the workforce is based on a hypothetical scenario spanning several decades into the future rather than on any stated policy agenda.”
The analysis comes against the backdrop of Britain's tax burden reaching its highest sustained level since the Second World War, largely as a result of frozen tax thresholds drawing more workers into higher tax bands.
The OBR earlier warned that unemployment is now expected to peak at 5.3 per cent this year, up from the 4.9 per cent forecast in November, reflecting a weaker labour market than previously expected.
Excluding the Covid pandemic, that would mark the highest unemployment rate since 2015, with the forecaster also highlighting a worrying increase in the number of young people out of work.
