We’d all better get used to it, the direction of travel on taxes is upwards


Taxes are going up. At least that’s the government’s official plan. Tax is set to exceed 36 per cent of GDP in the middle of this decade, according to the forecasts accompanying last week’s budget. That would be the highest since 1950, amounting to a £3,000 increase per household since Boris Johnson became prime minister. The unsubtle message is that higher taxes will be a central feature of British politics and economics in the 2020s.

Some say that forecasts are all well and good, that big tax increases aren’t what our future has in store because they won’t, or shouldn’t, happen. And these aren’t just any people: one is the chancellor himself. He used his budget speech to explain that his “goal was to reduce taxes” (never mind the £14 billion-worth of tax hikes he’d just announced, or the £29 billion put in train back in March). He went on to tell the 1922 Committee of Conservative MPs that “every marginal pound we have should be put into lowering people’s taxes”.

An old Treasury hand of rather longer standing goes further. Lord Macpherson of Earl’s Court, permanent secretary to the Treasury from 2005 to 2016, was happy to “confidently predict [the tax burden] won’t reach that level” because “the tax-take has been remarkably stable this century, never higher than 33.6 per cent”. His logic is that the tax revenues either won’t materialise or, if they do, that politicians will be pressured to cut taxes.

Both are right in a narrow sense, but wrong about this country’s higher-tax future. It’s almost unimaginable that the Conservative Party’s general election run-in won’t include a tax cut, but any tax cut will be a fraction of the tax rises delivered. If I go to the top of the Shard before coming down one floor, I’m still very high up.

Low-tax conservatives and sceptical mandarins alike are wrong because the roots of our higher-tax future are deeper than the ups and downs of the political or economic cycle. Our society, our economy and our politics all point in that direction.

It doesn’t matter how much of a Thatcherite you feel at heart, an older society means a bigger state, especially for a Britain that’s socialised the majority of healthcare spending via the NHS. We’ve been talking ageing societies for decades, but the 2020s is when it steps up a gear. All of the baby boomers reach 65 and many move into their 80s, pushing up the prevalence of chronic conditions and in-patient admissions. Spending pressure can push some things out of the public sector directly (you now pay to have your ears syringed) or via less visible rationing as people go private to avoid waits, but the main effect is that healthcare will become a bigger part of what the state does.

This isn’t just about ageing. An older society means more health spending, but so does a richer one. Health, like education, is a superior good that we want to spend a greater proportion of our income on as we get richer. It’s also an area with rising costs thanks to lower productivity growth than the economy overall and technological advances raising rather than cutting costs. Combined, this is why £84 billion of the £111 billion-a-year increase in day-to-day Whitehall-controlled departmental spending since 2009 is going to the Department of Health and Social Care.

Costs aren’t merely rising for what the state already does: we’re asking the state to do more. September’s announcement of a cap on social care costs nationalised more of the costs of an ageing society by protecting household assets from the bad luck of requiring significant care. The new system introduces a new ratchet for a bigger state. Political competition may see the level of the cap change in future and it’ll be in the direction of costing more.

Our economy also points towards higher taxes. Repeated hits to our national income since 2008 and slow productivity growth mean that our GDP/capita is expected to be up by only 10 per cent by 2024, compared with 43 per cent in 16 years pre-financial crisis. Both main political parties want to see debt falling as a share of the economy, something that slower growth will put more pressure on to higher taxes to achieve. Fiscal conservatism and low-tax conservatism have always been uncomfortable bedfellows.

The economy is also changing. Decarbonising everything from our buildings to our vehicles requires significant investment up front. The state will have to grow to facilitate this transition if we’re to protect lower-income households and see swift change. The government’s 50 per cent increase in capital spending from 2019-20 levels is right, even if it is in denial about how much of that will be required for net zero (only £7.2 billion is earmarked at present). So it’s not only in social care that the state is taking on new roles, which is why spending as a share of the economy is set to hit its highest level outside of a recession since 1982 by the middle of the decade.

Compounding all this is what has happened to our politics. It’s true that health spending was held flat as a share of the economy for most of 2010s, but that was neither the best preparation for a pandemic, nor politically sustainable. The UK is in the habit of having Conservative governments and such governments have a very strong incentive to deliver the health spending desired by older voters, who are twice as likely to vote Conservative as Labour.

Shorter-term politics also point in the bigger state direction: this government is running against George Osborne, and the legacy of austerity, as much as Sir Keir Starmer. There’s a reason Sunak’s budget speech boasted about undoing cuts that Osborne introduced: in 2010, 31 per cent of the public wanted higher taxes for more spending; that’s been at or above 50 per cent since 2017. After all, if you think taxes should go down, not up, you’ll need a good answer to the question: what is it you want to cut that George Osborne didn’t?

There is no God-given exact level of taxes, but the direction of travel is up. That’s where the underlying changes to our society, economy and politics point. We’re all social democrats now.

This article was originally published in The Times.