The last thing Britain needs is European taxation
DR. GERARD LYONS
If we were to bring UK income taxes closer into line with those in Europe’s major economies, it would cost the average taxpayer £1,015 per year.
One argument often stated nowadays is that Britain should move towards European-style taxation. But given this cost to the taxpayer, it is certainly not a policy I would advocate.
It’s an issue given added relevance by the Government’s desire to set the UK on a path towards closer ties with the EU, and it raises a wider economic question: whether Britain really wants to edge closer to a higher-tax European model that would further weaken competitiveness, further erode incentives to work and intensify the cost-of-living squeeze.Britain is already a high-spending and high-tax economy, and there is little evidence that persistently higher taxation delivers stronger growth or better public services.
Controlling public spending means looking seriously at welfare, alongside curbing the pace of growth elsewhere. In 2025/26, welfare spending alone (£333 billion) is expected to exceed income tax receipts (£329 billion).
There is a need, then, to push back against the idea that UK taxes can simply keep rising, as well as any drift further towards a western European model of taxation.
Already, fiscal drag is pulling many into higher tax brackets. The £1,015 figure would represent an additional annual burden on the average taxpayer if UK income taxes drifted towards the average seen in France, Germany and Italy – the three other western European economies in the G7.
Britain is not a low-tax country on any broad international measure. Using the latest OECD data, in 2024, the UK tax take stood at 34.4% of GDP against an OECD average of 34.1%. That places Britain slightly above the advanced economy average. That 0.3 percentage points of GDP is equivalent to around £9bn in additional taxation.
The picture changes sharply, however, depending on the comparator group. Against the major continental European economies in the G7, Britain is a materially lower-tax economy. France’s tax take stands at 43.5% of GDP, Italy’s at 42.8% and Germany’s at 38%, compared with the UK at 34.4%.
The average of those three countries is 41.4% of GDP, leaving Britain around 7 percentage points lower. Based on the size of the UK economy, that gap is equivalent to roughly £203bn more tax.
Yet these are slow-growth economies facing deep structural problems around demographics, innovation, productivity or industrial decline. Persistently high taxation, alongside heavy regulation, contributes to that weakness. The EU’s share of the world economy continues to shrink.
The question is not simply how much tax is raised, but at what cost to growth and competitiveness.
Economic growth is not solely about low taxes. In Britain, tax simplification including addressing high marginal tax rates should be the first priority. The UK tax system is unnecessarily complex and alongside excessive regulation across areas from planning to labour markets undermines productive performance and weakens the economy.
But incentives matter and the tax burden matters too. Over time, the tax take needs to fall, not rise, when conditions allow. Yet that still appears some way off unless public spending is restrained, government borrowing is brought under control, financial markets are reassured about the fiscal outlook and growth improves materially. That is a demanding list.
This article (The last thing Britain needs is European taxation) was created and published by CapX and is republished here under “Fair Use” with attribution to the author Dr. Gerard Lyons
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