Happy Tax Freedom Day! You’re working for the government longer than ever
Today is Tax Freedom Day, the point in the year where British workers earn enough to pay their off their tax bill and start working for themselves – and it’s later than at any point since 1981, says James Lawson
“There is nothing more permanent than a temporary government program”. So wrote 20th-century American economist Milton Friedman. Unfortunately, time seems to have only confirmed this old adage.
Today is Tax Freedom Day – the point in the year when Britons stop working for the government and start working for themselves. There’s a kind of cosmic serendipity in the fact that it falls the day after a Spending Review that will almost certainly be funded by yet more tax rises in the Autumn. And that’s when it’s already falling later than at any point since 1981. Worse, it’s only downhill from here.
In fact, based on government data, within this parliament, Tax Freedom Day could fall on the 24th of June in 2028. That would make it the latest in British history, yes, even later than during the height of the Second World War.
It says something rather damning about the state of Britain that our tax burden was lower in the recessions of the 70s/80s, and when we were fighting the Nazis, funding a global war effort and rebuilding from the Blitz (albeit with massive debt financing to compensate).
This might all sound strange considering the repeated promises not to raise any major taxes from all political parties. But these promises only highlight how dishonestly conversations around the tax burden actually are.
Stealth tax hikes
The truth is, that thanks to frozen thresholds, millions of workers are being dragged into higher tax brackets not because they’re earning vastly more, but because inflation is pushing up their wages while the tax system stands still. It’s a stealth tax hike in all but name, one that’s set to raise over £40bn by 2028, according to the OBR.
One might assume that after a decade of “austerity” and the highest tax burden since the 1940s, that the nation’s books would be in good order. Surely some actual tax cuts are just around the corner?
But the facts tell a much grimmer story. The government’s finances have never been worse.
The UK now owes more than £2.8 trillion, that amounts to around £40,000 for every citizen, from newborn to pensioner. Servicing that debt alone now costs more than we spend on education, and well over double what we invest in our military. Nearly a tenth of every pound the state spends disappears into the black hole of interest repayments.
And there’s little sign that things are getting better. In fact, we may be getting the opposite. Despite all the rhetoric about “fixing the black hole”, the government has already committed to overspending by £152 billion this year alone. That’s the biggest non-pandemic deficit in the last 15 years.
We can’t tax our way out of stagnation
It’s time for politicians to level with the public. We can’t tax our way out of stagnation. We can’t keep pretending that threshold freezes and stealth hikes are a substitute for real fiscal policy. And we certainly can’t ignore the economic drag caused by an ever-expanding state.
If we want to get the British economy onto a sustainable path, it will require significant cuts to the size and scope of government, and that means making uncomfortable decisions. Fortunately, polling from Adam Smith Insights shows that a majority of the public support cutting spending if it enables tax cuts.
Reforming welfare and pensions, tackling waste across the public sector and confronting the mounting cost of debt interest must all be part of the conversation. If politicians are serious about growth, they’ll need to embrace long-overdue supply-side reforms. This means fixing our broken planning system, cutting red tape and encouraging business investment.
None of these choices are easy, but the current path is simply unsustainable. After years of high taxes, record borrowing, and broken promises, the result is a stagnant economy, a mountain of debt, and a later-than-ever Tax Freedom Day.
Yet rather than changing course, this week’s Spending Review doubled down on the mistakes of the past. Now we are promised more debt, more interest payments and an even bigger burden on taxpayers in the years ahead.
It was a moment that demanded honesty and discipline – a moment to start confronting the hard trade-offs of our fiscal situation. Instead, it delivered the opposite: short-term political comfort at the expense of long-term economic health.
If this approach continues, Britain risks sleepwalking into a third lost decade of stagnation and unsustainable debt. We cannot borrow our way to prosperity, nor can we keep pretending that an ever-expanding state will somehow fix the country’s underlying problems.
James Lawson is chairman of the Adam Smith Institute