Merryn's Blog

Everyone wants to raise taxes on someone – it won't work

We can't hope to reduce the national debt through fiddling with taxes, says Merryn Somerset Webb. Only cuts to state spending can do that.

We have often pointed out that over the economic cycle, it isn't really a good idea for state spending to be much more than 35-37% of GDP. That's because at no time in recent history has the UK ever managed to raise more than this in taxes, regardless of what it does to the top and bottom rates of income tax or indeed to other taxes.

So if we want to live a deficit-free life one in which our national debt and the interest we have to pay on it don't just keep rising we really need to do something about state spending. It's currently running at more like 45% of GDP than 35%. Those in any doubt about all this (almost all politicians) need only glance at the chart below from Baker Tilly.

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It shows the UK tax take as a percentage of GDP since the '70s as well as the top rate of income tax. The latter has moved up, down and up again by very substantial amounts. The former has barely budged. It is what it is regardless of what governments do.

So there you have it. Whoever wins the election, we can't tax our way out of our fiscal problems. We can only cut spending and hope for growth.




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