Happy Tax Freedom Day, to all who celebrate! Although it’s not exactly a cause for celebration. British people have spent 162 days of 2025 paying off their taxes. By our calculations, Labour will see us off with the highest tax burden in UK history by the end of this Parliament. Is there any way to steer this ship off-course?
Every year, we at the Adam Smith Institute ask ourselves: ‘How many days do British people work just to pay off their taxes?’ The answer rarely pleases us, but this year it’s especially bad. Some 162 days were spent working for the government, not oneself. That’s six days more than last year, and the number has been steadily increasing since 2019. In fact, the tax burden has only decreased five times in the past 15 years.
What accounts for these year-on-year increases? Well, income tax thresholds have been frozen since 2022, meaning that inflation has fiscally dragged Britons into higher tax bands unrepresentative of their (lack of) real wage growth. VAT went up from 17.5% to 20% in 2011, and corporation tax (which is in fact wholly paid by workers) from 19% to 25% in 2023. And under this Government, employers’ National Insurance Contributions have risen from 13.8% to 15%, with the OBR estimating 75% of the rise will be shaved off workers’ real wages.
The backdrop to this rising tax burden has been a distinct lack of economic growth and real terms wage increases. Effectively, Britain is locked into what David Smith warns is a doom loop, a vicious cycle of tax and spend where the medicine of increased government spending makes the disease of economic malaise worse. In order to pay for public services without economic growth, the government has been increasing the taxes that are smothering that very economy.
The result is that British people are working 62% of their year for public services they’re increasingly dissatisfied with. In 2024, Ipsos reported that 71% of Britons ‘believe public services are failing to meet their expectations’.
According to the Nuffield Trust, public satisfaction with our National Health Service is particularly low. 79% of taxpayers are not satisfied with the government department that gets £258 billion, over one fifth of annual government spending. For 2024–2025, the Office for Budget Responsibility predicts the government to spend £45,000 per household. Whether the average household experiences £45,000 worth of public service delivery is unlikely.
But it’s not just the number of days spent working to pay off our taxes that is increasing. The distribution of the tax burden is also becoming increasingly top-heavy. The Institute for Fiscal Studies notes how the top 1% of earners contribute 29% of income tax. The top 10%? They contribute 61% of income tax receipts. Research from the Adam Smith Institute already predicts the UK’s number of millionaires to fall by 20% over the next three years. Pushed out by increasing taxes and changes to the non-dom tax status, they take their money elsewhere – dropping their tax contributions to zero. Chasing more tax receipts from Britain’s richest will only chase them out, and it’s the country that will suffer for it.
And things are poised to get even worse. By 2028, after our top 1% has shrunk, Tax Freedom Day could fall as late as Saturday, June 24. That’s over half-way through the year. By this point, taxation would exceed 50% of Net National Income. Over half of all the value produced by the British people would be sent to the state in tax. Considering the current formula of tax and spend hasn’t worked so far, reaching this milestone would yield nothing but a further misallocation of capital and the needless emptying of British pockets.
We’re hurtling down Friedrich Hayek’s road to serfdom at mach speed. Can we change course? It’s possible, but it requires a radical programme for economic growth. We need to tackle non-tax barriers to growth like obstructive planning policy, government intervention in wages, overreaching judicial review and energy demand-subsidisation.
But the Government will eventually have to address its addiction to taxation if it wants to get Britain growing again. We need an internationally competitive tax environment, to attract global talent and businesses to invest here. We need to lower National Insurance Contributions to make it easier for SMEs to hire people and produce value. We need to lower income taxes, so people can spend their money more wisely than the state.
On its current trajectory, Britain’s economy does not have a bright future. But with sound economics, we can steer this ship on a better course. That means kicking the state’s habit of tax and spend, and abstaining from increasing the tax burden.
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