Summary

• Over the past quarter-century, as the tax burden has risen, so too has the structure of the tax system become markedly worse. The level of tax and structure of the tax system did not create the UK’s post-2008 growth slowdown, but they has made recovery much harder.


• Although headline rates of income tax have not increased dramatically, the effects of fiscal drag mean that more people pay higher rates. In 1990 just 3.5% of adults paid higher rates of income tax, by 2010 this had increased to 8.5% and it is projected to rise to 14% by 2027. At the same time hundreds of thousands of people have been sucked into the ‘60p tax trap’ created by the withdrawal of the personal allowance from those earning over £100,000.


• While the burden of income tax on above-average earners has increased the share of revenue attributable to consumption taxes (such as VAT and excise duties) has fallen from 28 to 22.5% between 2000 and 2024. Economic evidence suggests that taxing income is more detrimental to economic growth than taxing consumption.


• After both great economic shocks Britain has faced in the 21st century, the 2008 Global Financial Crisis and Covid, governments responded by sharply raising taxes on investment. This result has been lower business investment and capital accumulation with predictable results for productivity growth.


• Britain raises more in property taxes as a proportion of GDP than any other country in the OECD. While well-designed property taxes are generally less damaging than taxes on investment or income, the UK’s property tax system is extremely poorly designed. Stamp duty is a particularly harmful, inhibiting both housebuilding and labour mobility.


• As Britain’s tax burden is expected to rise to a post-war high by the end of the decade the flaws in the structure of the tax system will likely become a more biting constraint on future growth than they have been over the last two decades.