One of the most common public policy misconceptions is that higher public spending, and higher taxes to fund that spending, results in better welfare.
For years, many British politicians have looked at Scandinavian public services with envy. The assumption that if you want Scandinavian-style welfare, you need Scandinavian levels of tax, has gone largely unchallenged.
This week, the Institute of Economic Affairs published a book comparing welfare outcomes across 23 OECD countries, and finds that this assumption is simply untrue. In fact, the best welfare performers are not the high-tax ‘social democracies’, but they are the growing, low-tax economies.
Countries like Switzerland, Japan and South Korea consistently deliver excellent results across health, education and social mobility. Far from being an outlier, this pattern appears strikingly consistent: smaller states, lower taxes and often, lower levels of public spending, result in better outcomes.
These results are damning for Britain, which has suffered a catastrophic decline in welfare performance. According to the ranking, Britain has fallen to 22nd place in life expectancy, and ranks just 15th overall, despite our record tax burden and ballooning welfare spending.
The problem is that almost every debate about Britain’s creaking public services has focused on how much money we spend, not how well we spend it.
Nowhere is this more pertinent than in healthcare. Poor NHS performance always makes headlines. But the only solution proposed is more cash . Despite Wes Streeting’s proclamation after the general election last year that the NHS is ‘broken’ and needs reform, the only solution proposed was a £25 billion injection.
Out of the 23 countries in the OECD, the UK ranks 20th overall on healthcare outcomes. Life expectancy in the UK averages just 81 years, placing it near the bottom of the table. We have high maternal mortality rates compared to other OECD countries, and have one of the lowest hospital bed capacities (only 3 per 1,000 people). The UK also suffers from 222 avoidable deaths per 100,000 people, one of the worst results among wealthy countries.
Despite our heavy tax burden and record levels of healthcare spending, the UK lags behind our counterparts on almost every available measure.
Conversely, Switzerland consistently ranks among the top performers in global healthcare, while also maintaining a relatively low tax burden. Swiss life expectancy is 83.2 years, one of the highest in the dataset, and has one of the lowest rates of avoidable mortality at 133 deaths per 100,000 people. Hospital capacity is far stronger, with approximately 5 beds available per 100,000 people.
Switzerland achieves these outcomes through a competitive, insurance-based system with diverse provision and strong incentives for efficiency and immeasurably better quality.
Interestingly, the Nordic model is not the success story many assume it to be. Despite their very high tax burdens, neither manages to deliver top-tier health outcomes: Denmark’s life expectancy has stagnated at 81.6 years, while Finland sits only slightly higher at 81.9 years, well behind lower-tax countries such as Japan, Switzerland and Australia.
The data simply shows that high taxes do not guarantee world-leading welfare outcomes, and the Nordic countries increasingly illustrate that the opposite is true.
One of the primary reasons that high-tax welfare states underperform is ‘welfare state crowding out’. When the state grows large enough to dominate healthcare, education and social protection, it displaces institutions that make welfare systems resilient. Private providers, mutual aid, savings, insurance markets, community organisations, and often, family support networks, are crowded out. An expansive state often acts as a substitute, reducing incentives for households to save, for companies to innovate, and for communities and civil societies to step in where needed.
The result is a more passive population, one that is reliant on the state for inadequate support. Over time, the system becomes more expensive and less effective.
High taxes may fund more spending, but they can also weaken the foundations of welfare itself, leaving countries with bigger bureaucracies with poorer welfare outcomes overall, and crucially far less flexibility to cope with rising demand.
If we want better welfare in Britain, that is, better education, better healthcare and better standards of living, we must challenge one of the most deeply ingrained assumptions in our politics. You do not achieve ‘more’ by taxing more. In fact, the opposite is usually the case.
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