Key Takeaways
- For the past generation, UK governments have raised revenue mainly by taxing “other people” – high earners, banks, capital gains, property wealth and the very wealthy – while keeping the tax burden on ordinary wages comparatively low.
- This approach has succeeded in keeping the UK’s overall tax‑to‑GDP ratio near the international average, but the pool of “other people” is shrinking as more voters become higher‑rate taxpayers.
- Wealth‑based or bank taxes can only yield limited sums (≈ £14 bn from immediate measures; a hypothetical wealth tax might add another ≈ £24 bn over several years), far short of the £600 bn currently raised from broad‑based taxes.
- Demographic pressures, defence spending and rising public‑service costs mean the current strategy is insufficient; the Office for Budget Responsibility and IMF warn that further revenue gains without broader taxation are limited.
- If the trend continues, by 2029 roughly one‑third of full‑time workers will be paying the higher rate of income tax, and two‑thirds will encounter it at some point in their careers.
- Political attitudes are shifting: support for tax cuts has risen from 3 % to 19 % in four years, while support for tax increases has fallen to 37 %.
- The only sustainable paths forward are either (1) accepting broader‑based taxes that most voters will feel, or (2) cutting spending significantly – a choice politicians have so far avoided by pretending “pain‑free” solutions exist.
The Politics of Taxing “Other People”
British politics has long relied on the idea that voters will accept higher taxes as long as they believe someone else is paying them. Surveys consistently show strong support for taxes on high earners, banks, capital gains, second homes and non‑dom status, but little enthusiasm for raising taxes that directly affect the average worker. Even the wealthy tend to favor taxes on those richer than themselves, illustrating the universal appeal of “taxing other people.”
Why the Strategy Has Worked So Far
Over the last twenty‑five years the UK’s overall tax‑to‑GDP ratio has risen to a fairly typical level, yet the tax wedge on the average wage has remained unusually low. This outcome stems not from hidden increases in VAT or fuel duty (which have been flat or falling in real terms) but from deliberate policy choices that target higher incomes and wealth while leaving ordinary wages largely untouched. The public’s perception of paying more tax is often driven by stagnant real incomes, rising housing costs and student‑loan repayments, which feel tax‑like even though they are not captured in the official tax wedge.
The Limits of Taxing High Earners and Wealth
Successive governments have used fiscal drag – freezing personal allowances and tax‑rate thresholds in cash terms – to push more workers into higher tax brackets without raising headline rates. The proportion of full‑time workers paying the higher rate has tripled since 1992, and those paying the additional rate have risen almost five‑fold since its 2010 introduction. Additional measures—higher stamp duty on expensive homes, curtailed pension relief for top earners, increased capital‑gains tax, reduced dividend allowances, the abolition of the non‑dom regime, and special bank levies—have further shifted the tax burden upward. As a result, the top 10 % of income taxpayers now shoulder about 59 % of all income tax, and the top 1 % pay roughly 27 %.
Why More Revenue from the Rich Is Limited
While taxing banks, capital gains and wealth sounds promising, the revenue potential is modest. Immediate increases in capital‑gains tax and bank levies could raise about £14 bn—barely a rounding error against annual public spending exceeding £1.2 tn. A wealth tax, even if implemented optimally, would take years to generate any meaningful inflow and might add another £20‑£25 bn after a prolonged ramp‑up. Combined, these measures fall far short of the £600 bn currently raised from broad‑based taxes such as income tax, national insurance and VAT. Moreover, the very wealthy are a small group; pushing taxes on them too far risks discouraging investment, wages and consumption, undermining the very tax base they aim to tap.
Fiscal Pressures Exceed the Capacity of “Other‑People” Taxes
The UK faces rising spending pressures from an ageing population, defence commitments and public‑service demands. The Office for Budget Responsibility and the IMF have warned that, beyond the planned tax‑ratio increase to 2030, further revenue growth without broader taxation is increasingly limited. Continuing to rely on “other‑people” taxes will inevitably pull more ordinary workers into higher tax brackets. Projections suggest that by 2029 about one‑third of full‑time workers will pay the higher rate of income tax, and roughly two‑thirds will encounter it at some point during their working lives.
Political Consequences of the Current Approach
Public attitudes are shifting: support for tax cuts has risen six‑fold since 2019, from 3 % to 19 %, while backing for tax increases has fallen to 37 %. This narrowing of options leaves politicians with three unpalatable choices—raise broad‑based taxes (and accept the electoral cost), cut spending significantly, or keep searching for new groups to label as “other people.” The latter strategy is losing credibility as the pool of viable targets shrinks.
The Ideological Gap on Both Sides
The modern Left often clings to the belief that a European‑sized welfare state can be financed by taxing the rich alone, ignoring the arithmetic that large states require broad‑based contribution. Conversely, the Right continues to denounce the tax burden while resisting the deep spending cuts needed to meaningfully lower taxes, focusing instead on marginal welfare reforms that save only a fraction of overall expenditure. Both sides thus evade the fundamental trade‑off: either accept higher taxes that most voters will feel, or accept substantial spending cuts that will affect popular services such as pensions, the NHS, social care and defence.
The Way Forward
The evidence shows that the strategy of taxing “other people” has run its course. To sustain current spending levels without eroding public services, the UK must either move toward a tax system where ordinary wages bear a larger share—aligning it with most other advanced economies—or undertake serious, targeted spending reductions. Pretending that pain‑free solutions exist will only delay the inevitable reckoning. Voters and politicians alike must confront the reality that funding the desired level of public services requires either higher, more broadly shared taxes or lower, more carefully prioritized spending. The choice is clear, and avoiding it will only deepen fiscal strain and political disillusionment.