We Need To Reform The Tax System As National Debt Rises — And Here's How

3rd February 2021

The national debt has topped 100 per cent of national income, and the annual deficit looks likely to stay well above £100 billion a year for the foreseeable future. That's not a recipe for fiscal sustainability. Another bout of spending cuts looks neither desirable nor plausible. Hence warnings from several quarters that tax rises look likely — not this year or next but before very long.

The warnings are surely right. We were due some tax rises just to cope with population ageing in any case. So we could be looking at an historic change. Pre-pandemic tax revenues were already at the highest sustained level relative to national income that they have ever been, if only by a smidgeon. Raising them by another couple of percentage points of national income — surely the minimum that will be required — will take the UK into new territory.

I could find you a dozen ways of raising that odd £40 billion. But if we are going to be in the business of increasing taxes to record levels then we ought to start by sorting out some of the problems in the way the tax system works. The problems create complexity, inequity and the kinds of invitations to tax avoidance which politicians spend so much time bemoaning and so little time actually fixing. The more we raise taxes the more costly these sorts of problems are likely to be. I'm afraid this is all a bit less exciting than just calling for wealth taxes or a soaking of the rich. But please bear with me.

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