10 June 2024

Britons aren’t seeing a return on sky-high taxation


Happy Tax Freedom Day to all who celebrate! Today marks the date on which the average British worker stops paying tax to the state and starts earning for themselves.

To be fair, while we at the Adam Smith Institute (ASI) celebrate the occasion, we should recognise that not everybody in Britain shares the centre-right view of the perfidious taxman. There is an implicit understanding shared by many that this is the price that we pay for functional public services and safe streets. Like it or not, when it comes to perceptions of the state, most Britons are more similar to our European neighbours than to our American cousins.

However, this implicit agreement – our ‘social contract’ – only works if the state holds up its end of the bargain. At time of writing, our health service ranks as one of the worst in the developed world, our railways are beset by union militancy, and more than 90% of crimes go unsolved. Sluggish economic growth, growing public disorder, creaking infrastructure – the list goes on and on. In every conceivable way, the state is failing to deliver the high-quality services implied by our high tax burden.

For younger people in particular, our sky-high tax burden is a particularly brutal kick in the teeth. Those entering the workforce since the 2008 financial crisis have battled against stagnant wages and a shrinking graduate premium, while house prices have climbed steeply thanks to our failure to build enough houses to meet demand. Increasingly, we are expected to pay top whack for the privilege of living in a country which has failed to deliver the opportunities that they need to succeed.

What’s more, government spending is focused disproportionately on services that many young people do not access at all. As of 2022-23, more than 40% of Britain’s budget was spent on healthcare, social care, the state pension, or servicing the national debt built up by previous generations.

Can it be right then that working-age people are being squeezed harder than ever, while our public realm crumbles? This mismatch ought to invite conversations about the sustainability of our social contract, and the viability of our spending obligations.

As ASI research last week demonstrated, the centrally-administered Ponzi scheme known as the ‘state pension’ could go bust as early as 2035, thanks to the unsustainable triple lock. This isn’t the only case of fiscal obligations coming back to haunt us – we now spend billions of pounds a year servicing the national debt thanks to the financial imprudence of the past few decades.

Ever-increasing fiscal burdens, ever-declining state capacity, and ever-stagnant economic growth – these are challenging conditions for any politician to navigate. This Tax Freedom Day, young people of all political persuasions should urge politicians not to default to reactive taxation as the answer to this conundrum.

As a country, we cannot afford to squeeze working-age people any further, at a time when many are already struggling to put down roots. Continue to do so, and we will be guilty of literally robbing young people of their future, taxing today’s workforce to pay for the needs of their grandparents.

In fact, we should be aiming to cut tax for working-age people, rewarding hard work by allowing people to keep more of the money that they earn. Goodness knows that our sluggish, low-growth economy would benefit from this kick-start – not to mention the positive impact that this would have on young people’s ability to start a family, pay down a deposit, and save for the future. As electioneering politicians throw around multi-billion pound promises with reckless abandon, it’s difficult to believe that there isn’t room for an ambitious plan to cut taxes from at least one of the major parties.

Often, when young people complain about the dismal state of our economy, we are accused of idly complaining without providing solutions. Ironically, these accusations often come from the generation which benefited from the tax-cutting Thatcher governments of the mid-to-late 1980s. Still, if it’s solutions that you’re after, here’s a simple one – if you want working-age people to stop resenting our political and economic status quo, start by cutting their taxes.

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Sam Bidwell is the Director of the Next Generation Centre.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.