The situation today

The situation today

Progressiveness

The tax system is not particularly progressive, with the costs of contributing not shared in a way that takes into account ability to pay:

  • Companies pay one of the lowest corporation tax rates among OECD countries (and the lowest in the G7), at 19% compared to an OECD average of 24% (although this is increasing to 25% in 2023, which will raise over £22bn per year)
  • The richest 10% pay just 34% of their income in taxes, but the poorest 10% pay 42% of their income in taxes (including VAT etc), and although income taxes and NICs are progressive, the highest-income fifth pays just 2.7 times as much direct tax as a share of income as the poorest fifth; while indirect taxes (VAT and excise duties) measured as a share of expenditure are distributionally neutral, council tax is regressive (the poorest 10% of the population pay 8% of their income in council tax, while the richest 40% pay 2-3%); and analysed at household rather than individual level, the income tax system is more or less flat, while indirect taxes are regressive
  • Wealth is not effectively taxed (including capital gains, pensions and property), with insufficient rates and excessive allowances (including unnecessary tax reliefs for companies as well as for individuals)

Effectiveness

Neither is the tax system very effective:

  • The tax gap (the difference between the amount of tax that should be collected, and the amount of tax actually collected) was estimated by HMRC at £31bn in 2020, but is estimated by campaigners to be much higher (including an extra £25bn lost due to profit-shifting by multinational companies)
  • HMRC's staffing has halved over the last decade, despite the fact that every £30,000 that is invested in an extra compliance officer brings in £900,000 in additional tax revenues
  • The UK prosecutes 23 times more people for benefits offences than tax offences, but the value of tax fraud is 9 times higher

Tax and public services

The UK aspires to Scandinavian levels of public services, but we do not raise enough taxes to support them. OECD analysis shows that the UK ranked 23 out of 37 OECD countries in terms of its tax-to-GDP ratio in 2019, with a ratio of 33.0% compared to an OECD average of 33.8%. By comparison, Denmark has a ratio of 46.3%, and most other European countries have ratios between 35% and 45%. The problem is not that we spend too much money, but that we raise too little money.

Tax and inequality

Our inadequate tax system is both a cause and a symptom of the scale of inequality in the UK today: