Columnist

The hidden cost squeezing Britain's economy

Whenever the cost of living is discussed, the conversation usually focuses on food prices, mortgages or energy bills. 

They’re all significant pressures, but they distract from a growing issue that receives much less attention: the growing cost of the state itself.

For business, it’s becoming increasingly difficult to invest in productivity and to recruit and expand. 

And for working people, pay rises often don’t feel like they have any impact at all. 

The common thread is that an ever-larger share of the nation’s income is finding its way back to the Treasury.

The UK’s tax burden now stands at around 36 per cent of GDP, the highest peacetime level in decades, and the Office for Budget Responsibility forecasts it will continue to rise over the coming years. 

This has real consequences for household finances and business confidence.

Take someone earning the UK’s median full-time salary of around £39,000. 

Before they have paid their mortgage or rent, bought their weekly shopping or switched the heating on, thousands of pounds have already gone in Income Tax, National Insurance and Council Tax. 

Add VAT, Fuel Duty, and the many other taxes and charges that have become part of everyday life, and it quickly becomes clear why so many people feel no better off, even when their wages increase.

Part of the problem is that much of this happens quietly. 

Income tax thresholds have remained frozen while wages have gradually risen. 

More people are being pulled into paying tax for the first time, while others drift into higher tax bands without any improvement to their purchasing power or living standards. 

It’s one of the least transparent ways governments can increase revenue, but even so it begins to have a huge impact on people’s finances. 

Businesses face similar pressures. 

Every additional cost, whether through taxation, regulation or employment overheads, is money that cannot be spent on recruiting staff, investing in new equipment or developing new products. 

As one business owner put it to me, individually some of these pressures are small and can be overcome, but collectively its ‘death by a thousand cuts’.

Britain has struggled with weak productivity growth for well over a decade. 

If we want higher wages, stronger businesses and rising living standards, we need an environment that rewards investment, encourages enterprise and gives people confidence that working harder will genuinely leave them better off.

The cost of living debate shouldn’t just be about inflation. 

It should also be about whether the overall burden placed on households and businesses is helping Britain grow or holding it back.

Kiran Fothergill is director of Pickerings Lifts and chair of Jobs Foundation North East 

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