The UK is in a fiscal bind. Debt servicing costs are at their highest in decades, the tax burden is rising, and 30-year gilt yields have climbed to late-1990s levels. In their latest note, Stephen Jen and Joana Freire warn that the UK may soon cross to the “bad side” of the Laffer Curve — the point where higher tax rates begin to yield lower revenues, as mobile individuals and corporations seek lower-tax jurisdictions.
“The UK is likely to be entering the wrong (negative) side of the Laffer Curve, as wealthy individuals and corporations are sufficiently mobile (footloose) that they could easily relocate to jurisdictions with less onerous tax systems.” — Stephen Jen and Joana Freire, August 29, 2025
The note highlights how expansive public spending since the pandemic has failed to deliver productivity gains, leaving the UK with weak growth, high interest rates, and a record tax burden. With welfare cuts politically blocked, the government is leaning on further tax rises. The authors argue this risks pushing the system into a self-defeating cycle, where higher rates drive lower receipts.
Table of Contents
- Bottom line
- A Laffer Curve for the UK
- ‘Opportunistic inflation’ and a broadened tax base
- Risks of entering the wrong side of the curve
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