It's time to stop treating Britain's tax system as taboo. Lets's talk about how it can work

We need to talk about tax and the common good. Next year all our tax revenues combined will climb to the highest level as a share of GDP for 70 years. This proposition has become the foundation for an increasingly fierce anti-tax narrative. Taxation at these levels is unconscionable and insupportable, it is claimed. It shackles enterprise, narrows the capacity for individual choice, worsens the cost of living crisis, and darkens economic prospects. As a result, Nigel Farage’s Reform UK has been able to tap into genuine, mounting grievances and present a potentially fatal threat to Labour.

It has become an economic and political imperative to challenge the idea that taxation is in itself a dark and sinister force. The future of Britain’s public services, the strength of our defence and security effort, social fairness and all that contributes to the common good hangs on unpicking it. For a government that is notoriously poor at political advocacy and messaging, lacking belief and self-confidence in what it stands for, that will be hard. But the issues can no longer be dodged: too much is at stake.

Firstly, taxation as a share of GDP must be put into context. It still places Britain only marginally above the international average, still short of the 40% ratio of the Nordic countries and others. Low growth and Brexit, depressing GDP, are as important a cause as tax. Moreover, the trends in the components of taxation over time are strikingly stable.

Even so, there are some important trends that are too little discussed. Freezing of the income tax thresholds for nearly all the 2020s will mean the number of higher rate taxpayers has already increased by about 40% to some six million, and will climb by the end of the decade to eight million; Britain has by default created a very progressive income tax system. On the other hand, while wealth as a share of GDP has doubled over the past 40 years, according to the Resolution Foundation, the proportional revenue from taxes on capital and property has scarcely budged. Another eye-catching trend is the plunge in the contribution from indirect taxes other than VAT, which has halved over the last 30 years. As Stuart Adam, a senior economist at the Institute for Fiscal Studies observes, the consistent freezing of excise duties on fuel alone has cost a cumulative £30bn fallaway in tax revenues.

Has all this created a statist stranglehold snuffing out enterprise, productivity and liberty? Hardly. As the IFS says, there is no unequivocal relationship between tax share and good economic performance; for example, all the Nordic countries have higher tax to GDP ratios, while poorly performing Colombia and the Czech Republic have lower ratios. The US is often cited as an exemplar of the opposite, but its dynamism has as much to do with its continental economy, pool of scientific research and deep capital markets as its tax regime. Nor is it to be envied given the stark inequalities and associated political polarisation that have resulted.

Meanwhile, for all the hand-wringing, Britain is astonishingly entrepreneurial, notwithstanding its standing as a middle-tax country. We rank third in the world for the number of startups, and third in the world for hosting so-called “unicorns” – fast growing companies valued at more than $1bn (£743m). The tax system does not appear to be stifling enterprise or menacing liberty.