British politics has spent a generation avoiding the same uncomfortable question: what if the state people want costs more than most voters are willing to pay?<\/p>\n
The answer, from Labour and the Conservatives alike, has been to tax \u201cother people\u201d. Higher earners. Banks. People with capital gains, second homes, large pensions, non-dom status, inherited wealth or very large fortunes. Taxes have risen, but the average worker has been largely shielded.<\/p>\n
This strategy has worked better than many people realise. The UK now raises a fairly typical amount of tax by international standards, but with an atypically low tax burden on ordinary wages. However we may have reached a limit. The pool of \u201cother people\u201d is shrinking, as higher-rate taxpayers are becoming normal voters. Wealth taxes and bank taxes raise limited sums. And the fiscal pressures facing the UK are getting larger, not smaller.<\/p>\n
So the question is no longer whether the strategy of taxing \u201cother people\u201d is popular \u2013 it\u2019s fairly obvious that it always will be. The question is whether the strategy has run out of road, and what happens next.<\/p>\n
The politics of taxing \u201cother people\u201d<\/p>\n
Few will be surprised that there\u2019s strong public support for increasing taxes that most people don\u2019t pay:<\/p>\n
\u2026 and very little support<\/a> for increasing the taxes that most people do pay:<\/p>\n Perhaps more surprising is that even the rich believe that \u201cother people\u201d should be paying more tax.<\/p>\n The \u201cPatriotic Millionaires\u201d organisation recently reported, rather triumphantly, that millionaires were in favour of taxing millionaires. What they actually found<\/a> is that the rich are not very different from you and me. People with \u00a31m in assets were strongly in favour of a tax on people with \u00a310m in assets, but took a markedly different view when presented with figures closer to their own wealth:<\/p>\n Voter hostility to paying more tax personally may be even greater than all these headline figures suggest. If you look at the small numbers willing to pay additional tax themselves and then ask them how much they\u2019re actually willing to pay, you find the answer<\/a> is\u2026 not much:<\/p>\n So the political pattern is clear: voters are often willing to support higher taxes in the abstract, or higher taxes on someone else, but support falls sharply when the tax is broad-based, personal, or large enough to matter.<\/p>\n And the problem with this is that the taxes people want to raise would yield \u2013 at their highly optimistic best \u2013 around \u00a340bn. The taxes people don\u2019t want to raise currently yield \u00a3600bn.<\/p>\n The UK\u2019s success in taxing other people<\/p>\n The remarkable thing about the United Kingdom is that whilst the level of tax has risen markedly in the last twenty-five years, the tax paid by the average worker on their wages has gone down.<\/p>\n In 2015, the \u201ctax wedge<\/a>\u201c (overall tax) on the average wage reached a historic low, and whilst the overall level of tax has been going up significantly, tax on the average wage has gone up only slightly:<\/p>\n Often people will look at this and say that other taxes must have increased, but that\u2019s not the case. There has been a real-terms increase in council tax in the last ten years, but the increase is small, and takes the tax back to where it was in the 2010s:<\/p>\n VAT hasn\u2019t increased since 2011<\/a>; fuel duty has fallen<\/a> in real terms. Stamp duty land tax saw significant increases in the 1990s, but changes since 2010 have had only a limited impact on the average person.<\/p>\n So whilst people certainly seem to think they\u2019re paying more tax than ever before, the evidence suggests that the average voter has not. At least not until very recently (more on that later).<\/p>\n So why the widespread belief that everyone is paying more tax? A plausible explanation is that what people are actually feeling is the lack of growth in real incomes and living standards<\/a>, the increased price of housing<\/a> and \u2013 for graduates \u2013 the impact<\/a> of student loans (which behave much like a tax<\/a>).<\/p>\n The UK is an outlier<\/p>\n There are plenty of countries that have an overall higher level of tax than the UK:<\/p>\n However almost all these countries achieve that by taxing the average worker significantly more.<\/p>\n Tax on the average worker<\/p>\n This chart shows the total tax on average wages in each country (the \u201ctax wedge\u201d) plotted against the overall tax in each country as a percentage of GDP:<\/p>\n There is an obvious correlation between the amount of tax raised and the amount average workers pay, and very few countries materially depart from it. In 2025, only one country raised more in tax than the UK without charging the average worker more in tax, and that was Iceland, with a population about the same as Cardiff. By 2027, every country that raises more tax than the UK will tax its average worker significantly more heavily than the UK.<\/p>\n Many of these countries also have materially higher indirect tax than the UK:<\/p>\n Tax on low-paid workers<\/p>\n The charts above focus on tax for the average worker, and so understate the uniqueness of the UK. If instead we look at taxes on a range of wages, the UK stands out \u2013 particularly for low-paid workers, whose tax in the UK is significantly lower than for any comparable country:<\/p>\n All of this suggests that the UK is already an outlier \u2013 and if we want to raise overall tax materially without raising tax on the average worker, our tax system will look very different from every other advanced economy.<\/p>\n Why don\u2019t high-tax countries just tax business and the wealthy?<\/p>\n There is an obvious question at this point. If countries like France, Denmark and Belgium raise much more tax than the UK, why do they tax ordinary workers so much more? Why not simply put much higher taxes on companies, capital gains, banks and the very wealthy?<\/p>\n Part of the answer is that there are limits to how much revenue can be raised from small groups, however wealthy they may be (and I talk more about this below). But there is a second answer, which is more fundamental: taxes on business and mobile capital are not magic money machines. They can raise real money. They can be justified on fairness grounds, and they can be an important backstop to the personal tax system. But push them too far, and you start taxing investment, wages and consumers, not just shareholders and billionaires. That is why the large Continental welfare states do not try to fund themselves by simply loading ever higher taxes onto business and capital. They tax those bases, but they also tax ordinary wages heavily. That\u2019s not an oversight, or an ideological failing \u2013 it\u2019s the arithmetic of a large state. The higher your overall level of tax, the more important it is to tax efficiently.<\/p>\n How has the UK done it ?<\/p>\n The short answer is: by taxing high earnings more heavily, mostly without headline income tax rate rises. And \u2013 whilst many countries have high levels of tax on high earners \u2013 the UK\u2019s top rates now kick in at much lower levels than most other countries\u2019.<\/p>\n Fiscal drag<\/p>\n Successive Governments have frozen the personal allowance and rate thresholds in cash terms, and let inflation and earnings growth do the rest:<\/p>\n The proportion of full-time workers paying the higher rate has gone up three times since 1992; the proportion paying the additional rate has gone up almost five times since it was introduced in 2010:<\/p>\n The overall impact<\/p>\n That\u2019s the biggest part of the story, but it is far from the only way Britain has raised tax on people with above-average incomes and wealth. Over the last fifteen years, governments have repeatedly increased taxes on property wealth<\/a>, with higher rates of stamp duty on expensive homes, second homes and additional properties. They have restricted pension tax relief<\/a> for high earners through measures including the tapered annual allowance, reduced the generosity of dividend taxation<\/a>\u26a0\ufe0f by increasing rates and cutting allowances, and increased taxes on capital gains<\/a> whilst sharply reducing the annual exempt amount. The government has also increased taxes on internationally mobile wealthy individuals through the abolition of the non-dom regime<\/a>, imposed special taxes on banks<\/a>, continued the long freeze in inheritance tax thresholds<\/a>, and introduced a new tax<\/a> on high value residential property. Scotland has seen even higher<\/a> taxes<\/a>. All whilst \u2013 most less visibly \u2013 the wheezes, tricks and loopholes used by the highly paid have been closed down, to a far more significant degree than in most other countries.<\/p>\n All of this means that, if we look at the Conservative and Coalition governments overall, the highest earning decile paid more tax as a result of policy changes. All other deciles paid less (but the lowest-earning four deciles lose out due to benefit changes, particularly the two-child limit). Here\u2019s the IFS figures<\/a>:<\/p>\n All of this has made an already top-heavy tax even more dependent on higher earners. In 2024\/25, the top 10% of income taxpayers paid around 59% of all income tax; the top 1% paid 27%.<\/p>\n Can it continue?<\/p>\n The IMF is sceptical<\/a> that the UK can increase tax further:<\/p>\n Beyond the planned tax ratio increase until 2030, staff analysis suggests that the long-term scope for further revenue increases is becoming limited unless more fundamental tax reforms are envisaged.\u00a0<\/p>\n I don\u2019t think that\u2019s right. There are many countries with overall higher tax than the UK, and some of those are very economically successful<\/a>. The question, however, is whether the UK can continue its recent strategy of raising money without raising tax on median workers.<\/p>\n I am sceptical.<\/p>\n Running out of road<\/p>\n The strategy is now simply insufficient to cover the fiscal pressures the UK faces as a result of demographic change and spending pressures (in defence and elsewhere). I expect that\u2019s why the Government felt it had to increase employer national insurance in the October 2024 Budget. This was very much not a tax on \u201cother people\u201d. It raises significant sums but, in the long run, the economic incidence of employers\u2019 national insurance falls on employees<\/a>.<\/p>\n And continuing the present course inevitably means taxing the average person. Our data suggests that, in 2029, one in three full-time workers will start paying higher rate tax. Because earnings rise and fall over people\u2019s careers \u2014 and because people move up and down the earnings distribution \u2014 around two-thirds of full-time workers will pay higher-rate tax at some point in their working lives.<\/p>\n Doubling down<\/p>\n The Green Party suggests going further, not just bringing more people into the higher rate but increasing tax on higher-rate incomes by 6%:<\/p>\n One obvious problem is that this results in some very high marginal rates. Another problem: this is exactly the policy Labour adopted in 1992<\/a> and was widely seen<\/a> as a significant cause<\/a> of their defeat. At the time, only 8% of full-time workers paid the higher rate \u2013 but others aspired to pay it<\/a>. And the Green Party is more exposed than Labour was in 1992, when its core support was still the working class<\/a>. The Green Party\u2019s core support can expect to actually pay the higher rate<\/a>.<\/p>\n I rather expect that either the Greens will drop this policy, or it could start to cause them significant political difficulty as we approach an election.<\/p>\n A change in public attitudes?<\/p>\n There are signs of a change in public attitudes<\/a> to tax. The percentage of people saying taxes should be reduced has always been small \u2013 3% even at the height of Thatcherism in 1987. But in the last four years, it\u2019s gone up threefold to 19%. At the same time, the percentage of people saying taxes should be increased has fallen to 37% \u2013 the lowest since the height of the financial crisis.<\/p>\n All this leaves politicians with a narrowing set of options: raise broad-based taxes and accept the political cost, cut spending, or keep searching for groups who can plausibly be presented as \u201cother people\u201d.<\/p>\n Can we just tax the rich?<\/p>\n If people paying higher rate are no longer \u201cother people\u201d, then perhaps the answer is to aim higher, and introduce taxes specifically targeting the very wealthy.<\/p>\n That\u2019s certainly the answer coming from the populist left. Let\u2019s say we follow the recommendation in that TUC polling and introduce a wealth tax, a tax on banks, and we equalise capital gains tax with tax on wages. Let\u2019s charitably assume each raises the advertised amount. What do their proposals do to the shape of the tax system?<\/p>\n You can increase capital gains tax and bank taxes more or less immediately. That brings in \u00a314 billion \u2013 essentially a rounding error when government spends well over \u00a31.2 trillion every year:<\/p>\n We have estimated<\/a> a wealth tax would take four years to raise any money, after which the total impact of the TUC\u2019s proposed taxes would look like this:<\/p>\n To put all these numbers in context:<\/p>\n So the \u00a338bn figure is mostly illusory but, even if it were real, it\u2019s insufficient to keep pace with current spending demands.<\/p>\n The inconvenient truth is that, whilst the very wealthy are indeed very wealthy, there are not that many of them \u2013 so the amount of tax that you can raise is always going to be limited in fiscal terms. And it will never fund (say) German levels of public services.<\/p>\n Running out of road<\/p>\n Taxing the rich will always be politically popular, whether it\u2019s justified as progressive redistribution or political expediency. There is a reason politicians keep promising that somebody else will pay.<\/p>\n The difficulty is that Britain has already spent a generation taxing somebody else, and by international standards we have been remarkably successful. The UK now raises a relatively large amount of tax while imposing a relatively low tax burden on ordinary wages. But this has run its course. <\/p>\n A generation of frozen thresholds means that they are no longer just a tax increase for \u201cother people\u201d; the average worker can expect to be directly affected. The popular new ways of taxing \u201cother people\u201d \u2013 targeting billionaires and banks \u2013 raise very limited sums in the context of UK public spending. And that ominous uptick at the end of the UK \u201ctax wedge\u201d chart<\/a> matches the uptick at the end of the \u201cBritish attitudes<\/a>\u201d chart.<\/p>\n All this is, in part, a failure of the modern Left. The traditional social-democratic argument was never that we can fund a decent society by finding a few unpopular groups and taxing them ever harder. It was that good public services require broad-based taxation, and that people should be willing to pay for the civilisation they want to live in. Most of the contemporary Left has abandoned that argument. It still wants a European-sized state, but sells it with the fantasy that someone else can pick up the bill.<\/p>\n This has been mirrored by a failure of the Right. It is still just as eloquent at denouncing the tax burden, but has become unwilling to identify spending cuts large enough to make a serious difference. It will argue for welfare cuts, but rarely identifies specific reforms that save more than a tiny fraction of overall spending. And it is generally unwilling to touch the biggest and most popular areas of spending: pensions, the NHS, social care and defence. So the Right ends up with its own version of the same evasion. <\/p>\n And so we end up with political failure. The Left says we can have European spending without European taxes because \u201cthe rich\u201d will pay \u2013 and so, when it finds itself in power, presides over deteriorating public services. The Right says we can have lower taxes without confronting the spending programmes voters most want to protect \u2013 and so, when in power, has raised tax.<\/p>\n Britain may have a viable path in either direction: higher broad-based taxes to fund a larger state, or lower spending to sustain a lower-tax economy. I don\u2019t know which would be more successful, but I know that we cannot have both. <\/p>\n Politicians can keep pretending there are pain-free answers: cutting \u201cwaste\u201d on one side, taxing \u201cother people\u201d on the other. That may fool the voters and win elections, but sooner or later, we have to choose. Higher taxes that most people will pay? Or spending cuts that most people will feel? <\/p>\n The strategy of taxing \u201cother people\u201d has run out of road.<\/p>\n Thanks to K and F for help with the modelling.<\/p>\n \u201cCrowd<\/a>\u201d by James Cridland<\/a>, CC BY 2.0<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"British politics has spent a generation avoiding the same uncomfortable question: what if the state people want costs…\n","protected":false},"author":2,"featured_media":622749,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[59,57,58,50,56,54,55],"class_list":["post-622748","post","type-post","status-publish","format-standard","has-post-thumbnail","category-united-kingdom","tag-gb","tag-great-britain","tag-greatbritain","tag-news","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/622748","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=622748"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/622748\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/622749"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=622748"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=622748"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=622748"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}