In this Institute of Economic Affairs podcast, Callum Price, Director of Communications, is joined by Dr. Kristian Niemietz, Editorial Director, and Daniel Freeman, Managing Editor, to discuss Rachel Reeves’ latest budget. The conversation examines whether the government has abandoned its growth agenda after the OBR stated that none of the budget’s policy measures would have a material impact on potential output. They analyse the government’s approach to economic growth, comparing it to someone who says they want to learn Italian but never takes any steps towards achieving that goal.
The discussion explores how the government has increased the total tax burden by £70 billion over two budgets, bringing Britain to the highest tax take as a portion of GDP in its history. Daniel and Kristian break down where this money is going, particularly the £16 billion increase in welfare spending by the end of the decade, and how income tax freezes and national insurance changes are funding this expansion. They examine the unusual political timing of imposing new taxes right at the end of a parliamentary term while most departments face real terms cuts, creating a situation where the government seems to lack a clear sense of what it’s trying to achieve.
The podcast concludes with an analysis of Britain’s highly progressive tax system and its impact on productivity growth. They discuss how the UK’s tax progressivity creates an illusion that public spending can be funded by a small number of wealthy individuals, when in reality a Belgian-sized public sector requires Belgian-level taxes on average earners. The conversation covers how punitive high-end taxation, combined with wage compression from minimum wage increases, has contributed to Britain’s dismal productivity growth of just 0.6% annually since the financial crisis, compared to over 2% before 2008.
