Laffer warns UK economy is taxing itself to death

Arthur Laffer, a former economic adviser to three US presidents, has cautioned that Britain is currently taxing itself to death. The intervention arrives ahead of the October Budget and serves as a stark warning to Prime Minister Andy Burnham regarding the nation’s fiscal trajectory. Laffer argues that the current policy environment is not fostering prosperity but is instead driving the economy into a dangerous decline.

Writing in The Telegraph, Laffer expressed a desire for British prosperity but criticised the government’s recent record. He stated that the data indicates the economy is entering a death spiral, a condition he believes is caused by excessive taxation rather than insufficient revenue. The economist, best known for coining the Laffer Curve theory, which suggests tax revenues fall when rates are raised too high, asserted that the core issue is a lack of growth and prosperity. He warned that any further tax increases in the upcoming Budget would only worsen the perception that the government has lost control of public finances.

This warning comes amid a global surge in borrowing costs, driven by investor fears over inflation linked to the Iran conflict and spending on artificial intelligence. In the UK, the yield on the 10-year gilt recently hit 5.294 per cent, the highest level since the 2008 financial crisis. This bond market volatility threatened to overshadow the start of Burnham’s first parliamentary session, prompting him to pledge a government grounded in fiscal responsibility. Lord Jim O’Neill, a former adviser to the Prime Minister, has urged immediate action to soothe investor fears, suggesting that credible measures to address welfare spending or the triple lock would be necessary to stabilise markets.