Britain's Tax System: The Worst of Both Worlds...?

On paper, Britains tax system is highly progressive---. The better-off are liable to very high rates, while average citizens pay much less in proportion to their earnings.

In comparison to many other countries there is a large disparity between what better-off individuals and average workers pay. In this technical sense, Britains system appears more redistributive than Scandinavians.

There is, however, much more to an effective system of taxes than a progressive structure. An effective system must be a source of sufficient revenue for public spending, that is a sufficient source of revenue for achieving specific economic or social objectives over time.

And judged by these criteria, it is clear that the current UK tax system is failing...

How Britain engineered the “worst of both worlds”

The issue is not that high-rate earners are not Contributing enough to tax revenues - it is that everybody else is not Contributing enough. Over the last decade and a half, each successive administration has implemented tax cuts targeting middle and low-income earners: increased Personal Allowances, a long freezes on fuel duties, and cuts in National Insurance contributions. Such policies are highly popular and easily saleable because they are seen as ‘supporting working households’.

However, this has resulted in a hollowing out of the tax base and Britain now largely depends on a few people who earn high income for taxation purposes.

This has created a radically unstable tax system. On one hand, Britain does not raise enough revenue to offer high-quality public services in a universal manner. On the other hand, it maintains high marginal tax rates on top earners that can be said to negatively impact investment and productivity.

Final Thoughts...

A sensible system would involve either higher taxes, levied in a wider range of ways, or a much reduced agenda for state intervention in society. Until politicians are prepared to address this simple truth, tax in the UK remains progressive in theory, impractical in practice, and beyond reform.