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The idea that higher taxes automatically improve public services is for the birds.  Aligning our tax regime with those of our European neighbours would cost us all dearly. A heavier tax burden would inevitably fall on average earners and middle-income households, Dr. Gerard Lyons writes.

“The arithmetic is clear,” he says. “Moving Britain towards continental European levels of taxation would mean materially higher taxes on ordinary earners, a larger state and a heavier burden on growth at a time when the UK economy is already struggling with weak productivity, poor competitiveness and rising spending pressures.”

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The Last Thing Britain Needs Is European Taxation

By Dr. Gerard Lyons, as published by CAPX on 12 May 2026

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.

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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 Organisation for Economic Co-operation and Development (“OECD”) data, in 2024, the UK tax take stood at 34.4% of gross domestic product (“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 £9 billion 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 £203 billion in additional 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.

What should the right benchmark be? In evidence to a House of Lords inquiry into fiscal policy last year, I suggested Britain should compare itself with faster-growing economies. On that basis, Britain begins to look relatively highly taxed against economies with which we increasingly compete. 

This is unlikely to change. In addition to the US and East Asia, this group includes emerging powers in the G20 like Indonesia and India that operate with tax takes in the low- to mid-teens.

Of course, these countries are very different from Britain, just as the high-tax Nordic economies are different too. Their tax rates could yet rise and I would not argue that Britain should adopt their welfare systems, just as I would not advocate Scandinavian-style taxes. But likewise, Britain should not simply copy continental Europe. 

Moving from the UK level to the French level would require around £263 billion in additional taxation. Matching Italy would require £243 billion more and the German level an extra £104 billion. Moving merely to the average of the three would require about £203 billion.

That is not a marginal adjustment. It is a fundamental expansion in the size of the state. 

A larger state does not automatically deliver stronger growth or better public services, even though many areas of state activity are essential. Public spending in Britain was in a range of around 35 to 40% of GDP in the 80s. Today it is around 45% and still rising.

The private sector drives economic growth. An overextended state eventually becomes a drag on it.

The Office for Budget Responsibility estimates that income tax will raise £329 billion in 2025/26, equivalent to 26.7% of total receipts. If this additional tax were raised in line with the existing composition of UK taxes, the implications are stark. Closing that £203 billion overall tax gap with the European G3 average would imply over £54 billion in extra income tax alone.

The sums involved are so large that the gap cannot credibly be closed simply by taxing the rich more or by targeting billionaires, who are highly mobile, despite this being a common refrain. It would be the squeezed middle carrying much of any additional burden.

Britain already has a highly progressive income tax structure. Around 60% of income tax receipts come from the top 10% of earners, and around 30% from the top 1% alone.

The recent rise in the tax burden has become increasingly concentrated among higher earners. A progressive system is welcome but can be pushed too far, particularly if high earners are mobile.

The UK tax base is therefore already heavily reliant on a relatively small group of higher earners rather than being spread broadly across the income distribution through a wider base.

The burden would inevitably fall more heavily on average earners and middle-income households. Despite a heavy tax burden, at the same time, average earners face one of the lowest effective personal tax rates seen since the mid-1970s.

OECD data shows that a single worker on average earnings pays 15.5% of gross earnings in personal income tax in the UK. The equivalent figure is 16.7% in both France and Germany and 20.9% in Italy. The average across those three major European economies is 18.1%, 2.6 percentage points above the UK level.

The Office for National Statistics puts median gross annual full-time earnings at £39,039 in April 2025. Applying a 2.6 percentage point increase in income taxes to that figure equates to £1,015. That is the additional annual income tax bill facing the median full-time worker if Britain were to move to the average income tax burden seen in France, Germany and Italy.

The picture on tax varies across different types of households and with payroll taxes and benefits. Nonetheless, the underlying argument remains robust. For instance, once employee contributions and benefits are included, the OECD puts the burden at 21.4% in the UK, compared with 37.4% in Germany and 28.1% in France. By contrast, family-based tax allowances and benefits can lower the burden in Germany or France relative to the UK for some household types.

It is sometimes said that Britain wants European-style public services with American-style taxes, creating the impression that Britain is lightly taxed or that higher taxation automatically improves public services. That conclusion is too simplistic, particularly at a time when the need for reform of British public services is widely recognised. Better outcomes require reform alongside appropriate funding models.

It is also important to recognise that taxes cannot keep rising indefinitely without damaging incentives, investment and growth. But it does not follow that the answer is simply to shift towards other forms of taxation. The real constraint is the overall burden imposed on the economy.

Not only is Britain’s tax burden already high, but its effects permeate through the economy, including feeding into the prices people pay as firms pass on higher costs, from energy to employing staff.

Ultimately, the debate is not simply about which taxes to raise. It is about how much taxation the economy can sustain before growth, competitiveness and incentives are damaged further.

The arithmetic is clear. Moving Britain towards continental European levels of taxation would mean materially higher taxes on ordinary earners, a larger state and a heavier burden on growth at a time when the UK economy is already struggling with weak productivity, poor competitiveness and rising spending pressures. That is not a future Britain should drift towards.

About the Author

Dr. Gerard Lyons is a research fellow at the Centre for Policy Studies.  He is a highly respected economist and has been described by The Times as “one of the most influential analysts of the global economy.”

He was an advisor to Boris Johnson when Johnson was London’s Mayor, was senior advisor to Gordon Brown’s Business Council for Britain and was a candidate for Governor of the Bank of England in 2019.