A Fairer UK Tax Mix - What Europe Shows, What the Numbers Say, and Why Politics Gets in the Way

24th January 2026

The UK is facing a sustained squeeze on living standards. Wages have struggled to keep pace with inflation, housing costs remain high, and public services—from the NHS to local councils—are under acute strain. In this context, the question is no longer simply whether taxes should rise or fall, but how the tax system can fund essential services without disproportionately penalising people on lower incomes.

Other European countries offer valuable lessons. They demonstrate that it is possible to run strong public services while protecting lower earners and not by endlessly raising headline rates on work, but by structuring taxes differently. The challenge for the UK is less about economics and more about politics.

What Europe Does Differently

Across much of Europe, the guiding principle is that earning a living should be taxed less heavily than owning wealth or consuming luxuries.

Many countries reduce the tax burden on low and middle earners through higher tax-free allowances, reduced social contributions at the bottom end of the labour market, or explicit "in-work" tax credits. Germany, the Netherlands and Belgium all use variants of this approach, ensuring that people in low-paid work keep more of what they earn.

At the same time, European systems tend to tax wealth and property more consistently than the UK. Property taxes are usually based on up-to-date values, rather than decades-old assessments, and capital income is less generously treated relative to wages. In countries such as Denmark, Switzerland, France and Spain, taxes on property, land or net wealth help fund local and national services in ways that do not fall directly on pay packets.

Consumption taxes are also used more selectively. Reduced or zero VAT rates on food, energy, children's goods and public transport soften the regressive impact of indirect taxation. During cost-of-living crises, several countries have temporarily cut VAT on essentials rather than relying solely on benefits or one-off payments.

Finally, many European systems strengthen the link between local taxation and visible local services. When people can see that taxes fund schools, transport or care in their own area, compliance and acceptance tend to be higher.

What a "Fairer UK Tax Mix" Might Look Like

A fairer UK tax mix would not necessarily raise more overall revenue, but it would shift where that revenue comes from.

At present, roughly 45% of UK tax revenue comes directly from work through income tax and National Insurance. A rebalanced system would reduce that share and make up the difference elsewhere.

In simple illustrative terms, such a mix would:

Reduce income tax and National Insurance, especially at the lower end of earnings

Permanently lower or zero-rate VAT on essentials such as energy

Replace council tax with a proportional property or land-based tax using current values

Tax capital gains and inheritance more consistently with income

Raise more from environmental, pollution and luxury taxes

Rely slightly more on corporation tax and windfall-style taxes in exceptional profit years

In practice, this would mean that lower earners would be clearly better off, middle earners broadly neutral or modestly better off, and higher-income or asset-rich households paying more—but primarily on wealth and unearned income rather than wages.

The result would be a system that taxes earning less, owning more, and environmental harm most, while protecting basic living standards.

Why the UK Has Not Adopted These Measures

If the economic logic is so strong, why has the UK not followed this path?

The answer is largely political

First, tax reform creates visible losers as well as winners, and the losers tend to be louder. Property taxes, wealth taxes and the removal of reliefs affect groups that are politically engaged, more likely to vote, and more likely to influence media narratives. Even when most households would benefit, governments fear backlash.

Second, the UK political system places enormous emphasis on headline tax rates. Income tax, National Insurance and VAT are highly salient. Any party seen to be increasing them risks immediate electoral punishment, even if those increases are offset elsewhere.

Third, the UK's fiscal debate is shaped by short political cycles. Structural reforms—such as replacing council tax or aligning capital gains with income tax—are complex, take time to implement, and often create transitional issues. Governments facing elections tend to prefer incremental changes.

What Political Parties Are Actually Proposing

This political caution is reflected in the positions of the main parties.

Labour Party (governing party)

Has pledged not to raise income tax, National Insurance, or VAT rates on working people. However stealth taxes by freezing personal allowances are doing just that.

Has considered property tax reforms, including ideas to replace stamp duty and review council tax — though details remain limited and politically sensitive.

Senior figures have declined to rule out future changes like capital gains tax alignment or narrow wealth levies, but Labour hasn’t committed to broad wealth taxes.

Some Labour MPs have publicly pushed for a wealth tax, but this is not official government policy — reflecting internal tensions.

Labour’s approach reflects a desire to appear fiscally responsible and electorally safe, even if that constrains deeper reform.

Conservative Party

Focuses on cutting taxes for workers (e.g., reducing National Insurance) and keeping headline rates low.

Opposes big wealth taxes and complex tax overhauls, arguing they could stifle business and economic growth.

This prioritises immediate relief on wages but leaves unresolved questions about long-term funding of services.

Green Party

Advocates wealth taxes on large fortunes, aligning capital gains with income tax, scrapping the upper earnings limit on National Insurance, and re-evaluating council tax.

Also supports targeted environmental taxes (e.g., carbon).

This is the closest to a European-style rebalancing, but it remains outside the political mainstream.

Liberal Democrats

Support some reforms like fixing capital gains tax alignment and anti-avoidance measures.

Have historically backed targeted property taxes (e.g., a mansion tax) though proposals vary.

Their proposals overlap with reform ideas but lack the scale to reshape the system on their own.

Reform UK

Proposes large tax cuts (e.g., big increases to income tax thresholds, reducing or abolishing inheritance tax, cutting VAT on energy).

Emphasises taking tax off work and consumption, but this would reduce revenue sharply unless balanced by cuts elsewhere.

The Underlying Reality

The UK’s tax debate is not short of ideas. Economists, think tanks and international comparisons broadly agree on the direction of travel: less tax on low earnings, more tax on wealth, property and environmental damage.

What is missing is political consensus and willingness to confront short-term risk for long-term stability.

Until a major party is prepared to say, clearly and repeatedly, that some people with assets will pay more so that work and essentials can be taxed less, reform will continue to be piecemeal. The result is a system that struggles to fund services properly while leaving many lower-income households feeling unfairly squeezed.

The UK has the evidence, the models and the numbers. What it lacks is the political courage to rebalance the tax system in a way that is fairer, more transparent, and better suited to the economic realities of modern Britain.