Tax burden hits post-war high as growth flatlines

American economist Arthur Laffer has warned that Britain is “taxing itself to death” as the Government approaches its October Budget. His dramatic diagnosis will strike a chord with small and microbusiness owners already struggling with employer National Insurance, business rates, corporation tax and a tax system so complicated that complying with it has become a significant business cost in its own right.

IS THE UK TAXING ITSELF TO DEATH

A prominent American economist has warned that the UK is “taxing itself to death”, a phrase that has ricocheted through business networks because it captures what many founders here are already saying. Britain’s tax burden is historically high, economically heavy, and structurally tilted against growth.

A 70‑Year High

The UK’s overall tax take is now 37% of GDP which is the highest since the 1940s. It’s Higher than the US, Japan, South Korea and rising faster than business productivity

For small businesses, the pressure is acute with the burden of employer National Insurance, Business rates, dividend tax and Corporation tax at 25%, frozen thresholds dragging millions into higher tax bands, VAT complexity, IR35 uncertainty and local levies and sector‑specific charges all weighing heavily, leaving margins squeezed to the bone.

The economist’s warning reflects the problem that the UK is taxing more while growing less.

A Dangerous Mix

The UK’s growth rate has been stuck near zero for years. When growth is weak, tax rises bite harder. The economist’s argument is that you can’t tax your way to growth. You can only tax your way out of growth. That’s because high taxes reduce investment, recruitment, innovation, competitiveness and productivity.

For small and micro businesses, the effect less cashflow, reinvestment, and resilience.

Hit Hardest

Large firms may pull in their horns, but they can shift profits, relocate functions, optimise tax positions and absorb compliance costs. Small firms can’t usually do any of those things and face higher marginal tax rates, admin burdens and compliance costs but lower access to reliefs and lower access to capital.

The economist is essentially saying our tax system punishes the smallest firms the most.

Rewarding Complexity

The UK tax code is one of the longest in the world with more than over 10 million words across legislation, guidance and case law, to wade through, with little likelihood of understanding it. This creates confusion, inconsistency and loopholes. The admin is a nightmare that drags down productivity and increases costs.

Part of the problem for small businesses is that the tax system was designed for big business and id completely disproportionate for small ones. The system is too complex and costly, making it unpredictable and slow and too difficult for small businesses to navigate.

The UK’s tax burden is historically high and rising and the system itself is structurally unfriendly to small and micro businesses.

A Pro-Growth Reset

A credible fix needs five moves.

Lower the tax drag on work and investment

Simplify the tax code especially for firms with fewer than 50 people.

Make business rates fit for the 21st century

Incentivise productivity, not paperwork, which the Government has announced a consultation on, starting on 7th September 26, and

Build a stable, predictable tax environment with no more annual tweaking. Businesses need certainty rather than surprises.

Survival

The economist’s warning resonates because it reflects what UK founders already know:

• The tax burden is too high.

• The system is too complex.

• Growth is too weak.

• Small and micro businesses are being dragged down by it.

The UK isn’t “taxing itself to death” but it is taxing itself into stagnation and a pro‑growth tax reset is essential for competitiveness, investment, productivity and the survival of small and micro businesses.