Key Questions

How do UK tax revenues compare internationally?

UK tax revenue is below the average of other developed economies. The UK stands out as raising less from social security contributions.

UK tax revenue is below average

UK tax revenue was 33% of gross domestic productGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more (GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more) in 2019 – the most recent year for which there are internationally comparable data. This is slightly below the average for both the G7A club of developed economies: Canada, France, Germany, Italy, Japan, UK, US.Read more (36%) and the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more (34%). While UK taxes are higher than in most other English-speaking developed economies (such as Australia, New Zealand, Ireland and the United States), they are considerably lower than in most other western European countries (average tax revenue amongst the EU14Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and Sweden.Read more was 39% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more). 

Under current government plans, UK tax revenue is forecast to increase to 35% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more by 2025–26. This would take the UK slightly above the 2019 OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more average of 34%. It should be noted, however, that other governments may also raise taxes following the COVID-19 pandemic, which could mean that the UK continues to raise a below-average level of tax.

UK was a high-tax country in the 1960s

As shown in the chart above, the past 20 years have seen taxes rise in most (though by no means all) developed economies. On average, OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more countries saw tax revenue rise from 32% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more over 1990–99 to 34% in 2019. This broadly reflects the UK’s own experience, with tax revenue rising from 31% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more to 33% over the same period.

Over a longer period, taxes in the UK have risen by less than in most other OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more countries. As a result, the UK has gone from being a high-tax country in the 1960s to a relatively low-tax country today.

Between 1965 and 1970, the UK was a high-tax country, with revenues broadly in line with those of the Scandinavian nations (see the chart below). Through the 1970s, the UK experienced a high degree of volatility in tax revenue (resulting from both government policy choices and turbulent economic growth), but it ended the decade with the level of tax similar to where it began. In contrast, most other developed economies increased their tax take in the 1970s. By the start of the 1980s, the level of UK taxation was therefore below that of Scandinavia and was more in line with that elsewhere in western Europe.

The 1980s and early 1990s saw UK tax revenue undergo a sustained decline during a period when most other developed nations experienced a steady increase in their tax levels. By the mid 1990s, the level of tax in the UK had fallen substantially below the western European, G7A club of developed economies: Canada, France, Germany, Italy, Japan, UK, US.Read more and OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more averages, though it remained substantially above that of the United States. The late 1990s saw taxes rise again in the UK, reversing the falls of the early 1990s. Tax revenue has since remained relatively stable by historical standards.

UK raises less from social security contributions 

Across all OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more economies, the majority of tax revenue is raised through three forms of tax: 

  • income taxes;
  • social security contributions (SSCs, which in the UK are called National Insurance contributions) and payroll taxes; 
  • general sales and value added taxes (VATs). 

The amount the UK raises through income taxes (a category that includes smaller taxes such as capital gains tax, as well as the main income tax) is broadly in line with international norms – it is Scandinavia that stands out, with higher income taxes than elsewhere. 

The amount the UK raises through VAT is also comparable to most other developed economies (other than the US, which is now almost alone in not operating a VAT). This is despite the fact that the UK has a narrower VAT base (because it applies zero rates more widely) than most other countries. Also common across most countries is that revenue from VAT has grown substantially over time (see the chart below). 

The biggest difference between the UK and most higher-tax countries is the amount of revenue raised through social security contributions (SSCs) levied on employees and employers. In 2019, National Insurance contributions (the UK version of SSCs) raised 6.6% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more, compared with 12.0% on average for the EU14Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and Sweden.Read more. The UK’s lower revenues from SSCs more than explain the UK’s below-average tax take – the UK raises more than both the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international body representing 38 mostly rich countries.Read more and G7A club of developed economies: Canada, France, Germany, Italy, Japan, UK, US.Read more average from taxes excluding SSCs.

Comparing SSCs should be undertaken with caution as their design differs substantially across countries. In many European countries, for instance, a strong link exists between the contributions made by an individual and the level of benefit entitlements they receive from the state in the form of, for example, pension income – so social security somewhat resembles a compulsory savings or insurance scheme. This differs substantially from the UK, where NICs are only very weakly linked to benefit entitlements and effectively function as a second income tax.

Higher-tax countries differ most from UK in tax rates on middle earners, not high earners

If the UK were to adopt the income tax and SSC rates of one of its higher-tax European neighbours, it would, in most cases and unsurprisingly, have higher tax rates and raise more revenue from both middle and high earners. But the difference in the tax levied would be larger for the median worker than for one near the top of the distribution. This is because average tax ratesThe amount of tax paid as a percentage of the tax base (typically income).Read more rise more quickly with income in the UK, and are already higher at the top relative to the median, than in most of the European countries that raise more revenue overall. Said differently, the UK has one of the more progressiveA tax is progressive if tax liability increases more than in proportion to the tax base, or to income.Read more income tax and SSC systems among European countries in the sense that average rates are higher at the top relative to the median. (This doesn’t imply that the UK tax and benefit system is more progressiveA tax is progressive if tax liability increases more than in proportion to the tax base, or to income.Read more overall.) 

This is demonstrated in the charts below. The average tax rateThe amount of tax paid as a percentage of the tax base (typically income).Read more (incorporating income tax and SSCs) on median full-time earnings in the UK was 28% in 2016–17 (the year for which this analysis was undertaken). This is much lower than it would have been under the tax systems of the other countries shown in the chart, for which the average was 44%. Some of this difference is accounted for by income tax, but most of it reflects lower SSCs paid by employers on their employees’ salaries; there was very little difference in the SSCs paid directly by employees. Since 2016–17, the income tax personal allowance has been increased more quickly than inflationInflation is the change in prices for goods and services over time.Read more, which will have further reduced income tax payments at median earnings in the UK. By contrast, the UK average tax rateThe amount of tax paid as a percentage of the tax base (typically income).Read more on a top earner in 2016–17 was 51%. This was still less than the 55% average amongst higher-tax European countries, but the gap was much smaller than for median earners. Indeed, the average tax rateThe amount of tax paid as a percentage of the tax base (typically income).Read more of top earners in the UK was higher than in a number of countries that had a higher tax burden overall, such as Germany and Italy. 

SSCs in all countries tend to be less progressiveA tax is progressive if tax liability increases more than in proportion to the tax base, or to income.Read more than income tax and therefore account for a larger share of tax payments for low and middle earners than for those at the top of the distribution. However, for top earners, those countries with higher average tax ratesThe amount of tax paid as a percentage of the tax base (typically income).Read more than the UK almost all achieve this largely through higher SSCs (mainly employer SSCs) for high earners.