New Times,
New Thinking.

  1. The Staggers
1 February 2023

The Tories’ tax delusion

Rishi Sunak and Tory rebels are both ignoring the truth: tax cuts now or later aren't a cure for the UK's economic maladies.

By George Eaton

The UK economy, as we have been pointing out for some time, is in a bad way. Britain is the only major country forecast by the IMF to suffer a recession this year and average real wages are expected to remain below their 2008 level until 2027. In the supposedly dismal 1970s – the decade used as a reference point for decline – average annual GDP growth was 2.6 per cent. Britain will be lucky to achieve half of that in the 2020s. The quip that the UK is becoming Italy without the sunshine is increasingly harsh on Italy.

For these economic maladies, Conservative MPs have a purported cure: tax cuts. Backbenchers, most notably the party’s Trussite continuity wing, are clamouring for Jeremy Hunt to take action in the Budget on 15 March. In response, the Chancellor and Rishi Sunak plead for more time. Not until inflation and government borrowing have been reduced, they insist, can they cut taxes. Like Maimonides, Sunak’s message is that the messiah will come “but he may tarry”. 

Though the tax take is approaching its highest level since the 1940s, the Prime Minister is not bluffing when he affirms his low-tax beliefs. It is the logical corollary of his commitment to a small state. In 2015, as a new MP, Sunak argued that “in normal times public spending should not exceed 37 per cent of GDP”. Though spending has swelled since then, as Britain has been buffeted by Covid-19 and much else, Sunak’s original ambition endures. On tax, the difference between the Prime Minister and his recalcitrant MPs is less one of principle than of timing.

But both sides are fixating on a false god. The UK’s mediocre economic performance owes little to its tax regime. Indeed, by Western standards Britain remains a relatively low-tax country. The tax take is forecast to reach 37.1 per cent of GDP by 2027-28, putting the UK comfortably below countries that are wealthier and more equal than it: France (51.7 per cent), Sweden (49.9 per cent), Germany (46.3 per cent) and Canada (40.6 per cent).

Rather than an excess of taxation, Britain’s economic woes reflect a dearth of investment. Spending on research and development remains among the lowest in the G7: the UK has just 101 installed robots per 10,000 employees, putting it behind countries including the Czech Republic and Slovenia. Business investment remains below its pre-Brexit 2016 level. The supposed “productivity puzzle” is not a puzzle when a country spends so little on training and technology. 

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.

As for taxation, the grim truth that Conservative MPs must confront is that the material factors pushing taxes upwards are stronger than those pushing them downwards. An ageing population, stagnant living standards, the climate crisis and heightened voter expectations all necessitate higher government spending – and, ultimately, higher taxes.

Do Britons feel overtaxed? A graduate earning £25,000 and paying an effective marginal rate of 41 per cent may have a case, as do the lowest-paid, but the polling evidence suggests that taxation is not a defining grievance. Britons feel underpaid and under-served (by the state and the market) but few will go to the barricades over taxes – a mere 6 per cent want lower taxes and lower spending, the cure prescribed by Tory libertarians.

Yet Conservatives persist in viewing tax cuts as an elixir for their political woes and Britain’s economic woes. As and when they eventually do cut taxes, they will merely discover that they have been looking in the wrong place.

[See also: The Daily Mail’s tax statistics are an own goal]

Content from our partners
Peatlands are nature's unsung climate warriors
How the apprenticeship levy helps small businesses to transform their workforce
How to reform the apprenticeship levy