Reeves should understand a basic truth on tax: the state always wants more
Kamal Ahmed
19 October 2025 at 0:23 pm
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“I’m not coming back with more borrowing or more taxes,” Rachel Reeves breezily declared at the annual conference of the CBI in November last year, a month after one of the biggest tax and spend budgets in UK history.
The pledge has not aged well. Borrowing is presently £16.2 billion above the same period last year and the Chancellor has admitted that taxes will rise in the next Budget. Our deficit is running at 4.8 per cent of national income, or around £137bn for 2024-25. The cost of servicing our ever increasing debts is around £111bn a year, more than we spend on defence and schools combined.
Labour MPs, unaware that governing is a serious business, obliged the Chancellor to reverse plans on welfare reforms and abandon cuts to winter fuel payments for pensioners. Neither policy was well drafted, making opposition easier. Inflation is high and sticky, some of which is down to the significant amounts we are borrowing on the global markets at high interest rates. The economy is struggling to leap free of stagnation.
The public has noticed. A month after the election, 13 per cent of voters believed Reeves was “doing a bad job”, compared with 20 per cent who thought the opposite. The “bad job” figure now stands at 58 per cent, a record. Those declaring “good job” has dropped to 10 per cent, mostly core Labour voters. Not since George Osborne was booed at the Paralympics has the public been so unimpressed with the resident of Number 11.
Politicians of whatever hue fail to understand a simple truth. The state will always seek to spend more, and once spending has started it is almost impossible to stop. In this endeavour, pressure groups acting for different special interests are willing worker bees. Every problem has the same answer. More money and more laws. Taxes, in ever more rococo structures, have to rise to keep up with demand.
The Government does not become an agent of growth – which Reeves insists she wants. It becomes a service for victims. William Niskanen, the gimlet-eyed Reaganite economist, argued with a degree of exasperation that the state was now expected to “prevent churches from burning, control the price of bread or gasoline, secure every job, and find some villain for every dramatic accident”.
In one of her first acts as Prime Minister, Liz Truss announced £150bn of new spending – much of it borrowed – to subsidise people’s energy bills. She is not known for her socialist tendencies.
Add to this what has become known as the “peculiar economics of bureaucracy”, the title of a paper written by Niskanen in 1968. Far from being primarily motivated by public service or efficiency – noble aims with which any bureaucrat would likely align – state actors are motivated by the same impulses as private market actors, namely increasing market share. As the state does not create profit, its markers of success are ever higher budgets, more functions and increased headcount. Growth is inevitable.
“Budget maximization should be an adequate proxy even for those bureaucrats with a relatively low pecuniary motivation and a relatively high motivation for making changes in the public interest,” Niskanen wrote.
“It is an interesting observation that the most distinguished public servants of recent years have substantially increased the budgets of the bureaus for which they are responsible.”
Our public finances are the victim. National spending has been above national income every year since 2001, when Gordon Brown was Chancellor. Osborne was the last occupant of Number 11 to make a serious attempt at cutting the deficit, for all the thanks he received from the public at sporting events and his fellow travellers on the Right. Reeves now uses “austerity” as an insult, not a promise to voters to pare back the already gargantuan bills our grandchildren will pay.
Examples of Niskanen’s Rule are legion. In 2016, there were 387,000 civil servants. By the end of 2024, the number had risen to 515,000. Some of that number are necessary increases – more border guards and more prison officers are hard to object to. But there are also more senior civil servants and more wasteful churn between departments. If cuts come – which they do sporadically – they often focus on front line, junior ranks, rather than senior leaders.
“The cheaper, easier-to-lose people go, the more expensive entrenched people stay,” said the Institute for Government, a think tank. “Talented people with the most options are mobile, less effective performers will tend to remain.” Sir Mel Stride, the shadow chancellor, has set a target of reducing the civil service headcount back to its pre-Brexit levels. He would do better to focus on pounds spent, not the number of people employed.
Ever more novel methods are being used to extract money from the public for things governments want. Over the past decade, nearly half of the increase in our electricity bills is accounted for not by the cost of the energy itself but the cost of government policies – a stealth tax by any other name.
“Across gas and electricity bills, a typical household now pays more than £250 per year towards policy costs,” said a report last week by the Resolution Foundation, a think tank.
“These charges fulfil laudable objectives, including greening our energy system (around 60 percent) and helping low-income households with high bills (approximately 40 percent). But they have ballooned: more than doubling in real terms since 2015.”
Not satisfied with the highest tax burden in history the Government has in effect created “a shadow tax and benefit system hidden within energy bills”. Far better to make it part of the actual tax and benefits system where the public can see what is being paid for and redistributed in their name.
What is to be done? Reeves has hinted at public spending cuts alongside new taxes on assets. She needs to go further and faster on the former.
A good starting point would be the rapidly increasing number of young people on disability related benefits. The former education secretary, Lord Blunkett, and former chancellor, Jeremy Hunt, have both put their name to a report from the Centre for Social Justice that demands young people on benefits are helped back into employment. If successful, it would save over £7 billion and get 120,000 young people back to work. The Chancellor should read it.
“The art of leadership is saying no, not yes. It is very easy to say yes,” Tony Blair told The Mail on Sunday in 1994. Reeves needs to find the same resolve and by this time next year be planning to cut the tax burden, not increase it for a third time.
