Make this the year Britain stops punishing wealth creators
Britain is now a £1 trillion tax state with the biggest differential between high and low earners in the OECD. Our top 10 per cent face rates comparable to Denmark while middle earners pay less than Americans, except we don’t deliver Scandinavian public services or American entrepreneurship. We’ve stumbled into the worst of all worlds, says John O’Connell
As we begin 2026, Britain has settled into its new role as a £1 trillion tax state with government receipts hitting £1,138bn in 2024-25. Our tax take is nearly 40 per cent of everything the country produces, the highest sustained level since the early 1980s. Having crossed this grim milestone in 2022-23, we might have expected some restraint in tax rises, but as always, ministers seem determined to make things worse.
The real scandal is how we got here. Frozen tax thresholds, extended again until 2031 in November’s Budget, represent the most insidious form of tax rise imaginable. The personal allowance remains stuck at £12,570, where it has been since 2021. Had it risen with inflation, it would now be £15,490, a gap of nearly £3,000. By 2030-31, frozen thresholds alone will generate £67bn annually for the Treasury, silently eroding take-home pay as inflation does the government’s dirty work.
Our marginal tax rates are now entirely punitive. Earn between £100,000 and £125,000 and you face an effective rate of 60 percent as your personal allowance vanishes. We’ve created a system where the state takes more from each additional hour worked than the worker does, and we wonder why productivity has stagnated.
This burden isn’t falling equally. Britain now has the biggest tax differential between high and average earners in the OECD. Our top 10 per cent face rates comparable to Denmark while middle earners pay less than Americans, except we don’t deliver Scandinavian public services or American entrepreneurship. We’ve stumbled into the worst of all worlds.
But it’s the government’s operational incompetence that truly beggars belief. Take business rates, which Labour pledged to “scrap” during the run-up to the last election, and “carry out the biggest overhaul of business taxation in a generation.” Instead, their first Budget delivered the exact opposite: higher bills for most businesses. Retail, hospitality and leisure relief was slashed from 75 per cent to 40 per cent, and business rates receipts for the Treasury are set to be £2.7bn higher in 2029-30.
Meanwhile venture capital investment limits haven’t moved despite inflation eroding their real value by half since 2016. The lifetime limits for VCT investee companies remain at £12m (£20m for knowledge-intensive firms), levels that might have made sense a decade ago but now exclude exactly the high-growth companies ministers claim to champion.
Breathtaking irony
The irony is breathtaking: while the government talks endlessly about AI and life sciences as our economic salvation, the tax system actively prevents these sectors from accessing the patient capital they need to scale. Promising biotech firms and AI startups requiring serious capital find themselves pushed abroad not by competitive disadvantage but by arbitrary bureaucratic constraints that nobody bothered updating for inflation.
This pattern repeats across the entire tax system: complications, red tape and bureaucracy designed to solve the problems of single-minded ministers, that instead crush the very businesses and entrepreneurs that the economy depends on.
The choice facing Britain in 2026 couldn’t be starker. We can continue down this path, piling complexity upon complexity, punishing success while rewarding bureaucratic box-ticking and cementing our status as a high-tax, low-growth economy that treats wealth creation as inherently suspect. Or we can choose to simplify our tax system, back success instead of penalising it, and make Britain a place where entrepreneurs want to build rather than flee from.
2026 must be the year we stop treating wealth creators as the enemy and start recognising them as the foundation of everything else we claim to value. Until then, our £1 trillion tax burden will keep growing while our capacity to bear it keeps shrinking.
John O’Connell is CEO of the Taxpayers’ Alliance