UK tax has gone up significantly over the last 25 years But the tax paid by the average UK worker has not This apparent miracle was achieved by taxing “other people”: higher earners, capital, property, banks, etc The strategy has run out of road A 🧵 on what happens next.
There is a much longer version of this thread on our website with full citations, links to sources, and all the charts are interactive and much clearer. taxpolicy.org.uk This is a quick summary... I'll post that chart again because it's amazing. The green line soars upwards, as the overall level of tax goes up. Tax on the average worker goes *down* (until recently!)
A lot of people respond to this by saying, "But other taxes have gone up". Not correct. VAT has been the same since 2010. Council tax has bobbed up and down, but no dramatic change. Other taxes too small to make a difference.
And by international standards, tax on low and average wages in the UK is really low.
The weird truth: every country in the world with the same or higher level of overall tax than the UK, achieves it by taxing the average worker more. (Except Iceland; population the same as Cardiff)
This is all, of course, pretty popular. There is no support for putting up the taxes that most people pay.
Everyone is keen on putting up taxes on "other people":
Even millionaires are in favour of increasing tax on "other people" (until they realise the "other people" are them)
And for 25 years, the UK has taxed "other people" very successfully. Mostly by fiscal drag. Three times as many workers pay the 40p higher rate as in 1992. Five times as many pay the 45p additional rate vs its introduction in 2010.
And a whole bunch of smaller changes: - Eliminating almost all tax reliefs - Much higher stamp duty on high-value homes - Special taxes on banks - Corporation tax increases and so on... 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. (IFS figures)
But we've reached the limit. We estimate that two-thirds of full-time workers can now expect to pay higher rate tax at some point in their working life. Higher rate tax is no longer for "other people". And even if you impose high taxes on the wealthy, there aren't enough of them to raise significant sums. Here's what happens if the TUC's fantasy list of wealth taxes actually raises what they say it will (spoiler: it won't) (You may need a magnifying glass)
So that's why Labour reached for employer national insurance. A really bad tax increase, and one which impacts the average worker. That's the uptick at the end of this chart. (sorry to post this three times, but it amazes me)
And possibly connected: there's also an uptick in the numbers of people wanting tax cuts. Usually very small but trebled in the last three years.
There is a reason politicians keep promising that somebody else will pay Taxing the rich will always be politically popular, whether it's justified as progressive redistribution or political expediency But it has a limit in France, Denmark, etc. And it has a limit here too The difficulty is that we've been taxing "other people" for a generation, and by international standards we have been remarkably successful. But we're done. And given almost nobody knows that this has happened, persuading people to change course is hard. And so we end up with political failure. The Left says we can have European spending without European taxes because “the rich” will pay - 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 - and so, when in power, has raised tax. We could go either way. Higher broad-based taxes to fund a larger state, or lower spending to sustain a lower-tax economy. I don't know which would be more successful, but I know that we cannot have both. Demographic change means the status quo is not an option. Politicians can keep pretending there are pain-free answers: cutting “waste” on one side, taxing “other people” 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? That's it. Pick one. If your answer is "government waste" or "tax the rich", then you're part of the problem. The strategy of taxing "other people" has run out of road. Full version with much more in the way of sources, evidence, and interactive charts is here. taxpolicy.org.uk If you like being depressed by pretty charts, you can follow me here or subscribe to our free newsletter at taxpolicy.org.uk. (I guarantee it will always be paid for by other people.)