- Tax in the UK is lower than many advanced economies and the
projected ‘record’ level by 2027 would raise the UK only to
‘mid-table'
- International comparisons show that UK tax levels are not a
barrier to wage growth and higher incomes, says IPPR report
- Upside of tax: higher taxes to strengthen public services and
new net-zero industries would be popular and unlock sustainable
growth
Setting an arbitrary ceiling on the
so-called tax share of the UK economy risks hampering national
growth and prosperity, according to a new report by
IPPR.
Not only does the UK have relatively
lower tax levels than most economically advanced countries, but
many nations with higher tax rates have enjoyed stronger real
wage growth and greater average disposable
incomes.
Even if the UK reaches projected
record levels of post-war taxation in four years’ time, IPPR says
it would remain in the “middle of the pack” within the OECD
economic organisation, whose 36 members produce around 60 per
cent of global output.
Failing to invest more now in the
infrastructure, targeted industrial development and public
services needed to support a healthy, well-educated and
flourishing workforce would leave the UK at risk of falling
further behind through slower growth, the report
concludes.
IPPR’s paper argues that the UK can
have higher levels of tax at the same time as higher prosperity
and growth – and that, given the current poor state of public
services, the higher spending that taxes would support is
essential to restoring growth.
It lays bare the truth about
the UK’s economy compared to those of other advanced economies
and finds that:
-
Many advanced economies including
Germany, Denmark and France have higher average disposable
incomes than the UK, whilst also having higher tax
levels.
-
Advanced economies have increased
their tax levels steadily since the 1960s, leaving the UK an
outlier - in that our tax levels have increased more
slowly.
-
In recent years, tax levels have not
had a significant relationship with real wage growth. Many
countries with a higher average tax level between 2010 and 2019
also saw higher growth in real wages over that period. Some
countries with lower tax levels also saw lower wage
growth.
-
If the overall UK tax level rises as
projected, from 33.5 per cent of total output (GDP) to 37.7 per
cent (largely to cover higher debt interest payments and other
costs), the tax take would still be lower than in countries
with higher wage growth over the past decade – including
France, Sweden and Germany.
The report argues that
well-funded public services
provide many of the building blocks for economic opportunity and
prosperity. However, it points out that between 2010 and 2019
public spending as a proportion of GDP was cut from 46 per cent
to around 39 per cent.
The report says that – contrary to
claims made by anti-tax campaigners and others - failure to raise
taxes fairly to the higher level needed to support more effective
public services will damage UK prosperity.
To support what the report calls
“smarter spending”, it also proposes changes that would deliver
“smarter taxes”, including equalising taxes on wealth with taxes
on income.
Pranesh Narayanan, research
fellow at IPPR, said:
“The fixation on overall tax
levels is a distraction from the real issues. The likes of
Germany and France, and many other advanced economies, have seen
sustained growth in incomes whilst maintaining much higher tax
levels than the UK.
"Labour shortages driven by rising long-term illness, high
energy prices and crumbling schools are bigger barriers to growth
in the UK. Even fiscally cautious organisations such as the IMF
are recommending higher spending on health, education and net
zero to unlock sustainable growth. Within this context, higher
tax levels will ensure that the government can deliver high
quality services.”
Dr George Dibb, head of the
centre for economic justice at IPPR, said:
“The politicians and journalists
of Westminster are obsessed with the UK’s levels of tax, or – to
use the heavily critical phrase – tax
‘burden’. We argue
this fixation is a mistake. Far more important is who is paying
tax and what those tax revenues are being spent on.
“The UK faces a multitude of
challenges but they won’t be solved by cutting taxes. In fact,
from too many people unable to work because of illness to our
dysfunctional transport infrastructure, more revenues to fund
better public services can help solve our economic woes. Not only
that, the public broadly support fairer tax rises that fall on
those who have weathered recent crises the best, with revenues
spent on improving public services.”
ENDS
NOTES TO
EDITORS
-
Figure: Comparison of tax-to-GDP ratios for selected
OECD countries
- Figure: Comparison of real wage growth to tax levels, all
values are the average from 2010 to 2019
