Britain’s politicians can’t stop taxing us

For years now, the TaxPayers’ Alliance’s ‘Tax Briefing Room’ has been a go-to resource for campaigners, policymakers, politicians and ordinary taxpayers seeking to brush up on the UK tax system.

Keeping it up-to-date is an arduous task. Given the endless meddling of UK policymakers, significant parts seem to become outdated every time a Budget comes around. That has certainly been the case since the last time we updated the Briefing Room, in late 2022.

This would be fine if all that meddling was focused on simplifying the system through equalising thresholds, abolishing exemptions and removing entirely unnecessary taxes. Even better if the meddling involved slashing or removing marginal rates of tax.

Unfortunately, our latest edition, published today, shows that over the past two years, our politicians and policymakers have delivered a tax system that is even more burdensome and complicated than before. Which is quite some feat.

First, there is what hasn’t changed. Notably tax thresholds. Two more years have passed, yet income tax thresholds remain fixed where they were in 2021-22. Particularly damaging is the extraordinary 40p rate paid by those earning £50,270 or more – not much higher than the median full-time pay of a London employee – along with the 60p rate on earnings from £100,000 to £125,140, as a result of the withdrawal of the personal allowance. Compare these to the United States, where the highest marginal tax rate is 37%, and even that only kicks in at a handsome $609,351 per year (or around £530,000).

Then there are the ways the tax system has become even more onerous. The list is long, but it includes: a reduction in the first-time buyer rate for stamp duty land tax; above-inflation hikes in tobacco duty; increases in the licence fee and air passenger duty; and reductions in both agricultural property relief (APR) and business property relief (BPR) for inheritance tax purposes. And, surely the worst of all, the increase in the employers’ rate of National Insurance, plus the reduced threshold at which it’s paid.

There have been almost no improvements to our tax system, aside from the 4p cut to employee National Insurance. That represents a shocking failure on the part of our political class. 

A huge amount could be done to improve taxpayers’ economic incentives without damaging tax revenues. The economic boost from abolishing the 60p effective marginal income tax rate would likely make such a move not far off revenue neutral. The same is true for the abolition of stamp duty. Instead, politicians seem to be engaging in their own personal experiments of where the Laffer curve sits with each tax, with little attention to the results. To take just two examples, increasing rates on capital gains tax and tobacco duties have led to shrinking revenues in both cases.

The real horror, though, is that despite the situation we find ourselves in – low growth, high inflation, increasing levels of worklessness, declining business confidence – things look set to get worse. Just this week, the conversation has turned to exit taxes which, as the tax expert Dan Neidle points out, are an extraordinarily damaging prospect, even if they remain just an unrebutted rumour, due to the impact on peoples’ behaviour. The Government has, it seems, ruled out a wealth tax, although it would be an exaggeration to describe its statements on the subject as unequivocal. But that’s not a victory for low, simple tax advocates – just the avoidance of a catastrophic defeat. Dunkirk comes to mind. 

What’s remarkable is the way in which so much tax policy in recent years has not just been economically damaging, but politically damaging as well. Any economist could tell you that broad-based taxes on consumption and income are the least damaging ways to raise large amounts of revenue, while cutting or abolishing taxes on particular behaviours or activities are the best way to boost economic growth with minimal losses to receipts. The same applies to politics: small changes to broad-based taxes may impact a lot more people than major changes to smaller taxes, but it is the latter which usually cause the biggest headache politically. And yet the Sunak government left stamp duty untouched while cutting National Insurance, while Reeves tried to use VAT on private schools and a reduction in APR and BPR as revenue raisers and left National Insurance on employees, VAT and income tax untouched. 

If there is a lesson from the extraordinary range of taxes detailed in our tax briefing room, it is that a policy like the TPA’s single income tax is the only way forward. Focusing on broad-based taxes levied on income and consumption, with an abolition of taxes on business, property purchases, wealth and investments, will drive growth and prosperity for all.

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