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UK thinktank urges higher taxes on middle earners for defence plan
The Resolution Foundation says the UK would need about £28bn a year more to reach the 3.5% of GDP defence target by 2035, and that doing so likely requires lifting the tax wedge on average workers.
The Resolution Foundation thinktank has urged UK Chancellor John Healey to be prepared to raise taxes on middle earners to fund higher defence spending, arguing the country’s “tax wedge” remains low by international standards. The group said the chancellor will need a plan after the next spending review to meet Labour’s pledge to devote 3.5% of GDP to defence by 2035.
In a new report, the thinktank estimated that meeting the defence promise would require an additional £28bn a year. It warned that Healey may not be able to cover that gap without asking average workers to pay more, despite historically large tax rises since Labour came to power.
The analysis said tax rises under Healey’s predecessor, Rachel Reeves, drove a 2.4 percentage point jump in the tax wedge last year, the largest increase among OECD countries. Still, it put the tax wedge at 32.4% for a single earner on average pay, below OECD and G7 averages.
The thinktank also argued that countries with higher public spending tend to draw more from average workers rather than relying mainly on business or wealth taxes. Its chief economist, James Smith, said the UK has a bigger state and a lower burden on average workers than other OECD rich countries, making it difficult to promise both without changes to how the state is funded.