I just love the Institute for Fiscal Studies (IFS). Fair, intelligent, expert, well-researched, detailed analysis is just what the UK needs more of.
Its latest report shows that “By the time of the next election, on current forecasts, taxes will amount to around 37% of national income, up from around 33% in 2019.” It also makes clear that no government since the 1950s has increased taxes by as much as this one.
To put it in context, the government is getting an extra £100 billion more in tax revenues every year, that is an extra £3,500 per household per year. Yet nothing works. The country is falling to pieces, the NHS is crumbling before our eyes, HS2 is doomed, even more defence cuts are on the way and schools are being evacuated because of the danger they will collapse.
This sorry state of affairs is also nothing to do with Covid, by the way. That was a one-off cost, this is a permanent change caused by demographics and many, many years of low growth and terrible productivity.
Still, we should not panic. The UK has for decades been persuaded that it could have European levels of health care, education and all the rest and tax levels closer to American ones, but this has always been a lie.
The tax rate in the UK even after these increases means the government will only be taking 37% of GDP in tax. Yet most of our European friends and rivals’ tax at around 40% and have been for decades. Some tax at 50%+ and seem to do fairly well, but 40%+ is a perfectly manageable level of taxation and spending.
Also, if you do tax at that rate consistently, you find that you have over time an awful lot of money to do the right thing. This is why France and Germany have more doctors and nurses, newer hospitals, more beds, more CAT and MRI scanners than we do – and that is just looking at the health system.
As Mark Franks, director of welfare at health think tank the Nuffield Foundation points out the IFS’s figures are just the start as “Demographic change combined with slow economic growth is creating an almost inevitable increase in tax revenues as a share of GDP.“
It would therefore make far more sense to have a grown-up debate about the future of taxation in the UK. It has risen, will continue to rise and there is nothing much any government can do about it.
What we need to discuss is how not to dump all that added burden on the young, on working families and the relatively less well-off and how to change the political debate so that we no longer fool ourselves that this is a reversible trend. It is not.
Instead, from Rishi Sunak we are likely to get inheritance tax cuts and higher pensions for pensioners, combined with outright lies about the ability of the government to ever get the tax take down again and endless claims that more austerity can square this circle.
If only higher tax meant a higher level of honesty and political debate – but that is one of the few things it won’t buy you.