Progressive tax for workers, high streets, and communities

For too long, people have felt like work doesn’t pay. The link between people’s work and livelihoods has become increasingly frayed. Real weekly wages increased by just £16 between 2010 and 2024, whilst the tax burden has reached highs not seen since 1949-50, with tax as a share of GDP set to reach over 37%.¹ Low pay and high taxes are discouraging people from working and, at a time of great automation and labour market risks posed by AI, the cost of employment requires a rethink.

Whilst it is generally those on lower incomes who are most exposed to these trends, this is by no means exclusively the case. Meanwhile, there is a sense that even those earning a good salary are not seeing the fruits of their labour, whilst the very wealthiest get away with paying less. The Treasury is struggling to enforce the taxes we already levy, and to identify the wealth that already exists in the country.²  High streets are being battered by business rates, rents, and changing retail culture, resulting in empty town centres.

We need to improve our tax system, so that it is fair, rewards hard work, and creates tax receipts that can allow the government to deliver investment at scale. We need a tax system that is pro-growth and encourages businesses to invest and expand, whilst giving high streets the chance to thrive by making sure that big businesses pay their fair share. Our party – the Labour Party – has a duty to deliver this.

Making work pay, making hiring work

Restoring a clear link between work and livelihood is not just a moral imperative, but an economic necessity. We know that when working people have extra disposable income, they spend it – in a way that benefits both the local and wider economy.³ Yet fiscal drag, coupled with ongoing cost of living pressures, has led to lower earners taking home less. Whilst the ballooning of the tax base (an extra 700,000 taxpayers by 2030/31) has helped stabilise the country’s finances, it’s directly harming living standards, and hindering economic growth.⁴ Successive governments have allowed an economically distortive situation to apply where those on lower incomes are increasingly dependent on benefits, yet also being brought into paying tax.

A truly progressive tax system will enable working people to take home more of what they earn, stimulate growth through additional spending and, in turn, improve government tax receipts. Be it a nice meal at a local café, a new gym membership or renovating a kitchen, this disposable income is spent, boosting local businesses and the economy at large. We must, therefore, end fiscal drag for the lowest earners, allowing the Personal Allowance to increase with inflation, paid for by the creation of an Additional Rate Band for Capital Gains Tax – further shifting the burden of tax onto wealth and away from work. The threshold has remained unchanged since 2021, but if it had kept up with inflation, the lowest income workers would now have around £500 extra every year.⁵ Additionally, increasing the Personal Allowance would automatically protect pensioners from paying income tax on their state pension, preventing the need for a workaround.

Those who earn more should pay more in tax, but our current system strays from this most basic maxim. The loss of personal allowance and the abrupt end to childcare provision and can result in a marginal tax rate of 60% (or 71% with student loans), meaning those earning £100,000 proportionally pay more tax than those earning millions each year. This tax cliff benefits no one: it dissuades workers from earning more, which dampens productivity, ambition, and HMRC tax receipts. Concurrently, carers face a similar tax cliff, where earning a single penny too much can cause them to lose their entire Carer’s Allowance. The current system requires carers to work over 35 hours a week for only £86.45 – just £2.47 an hour. Not only does this unforgiving system trap hardworking carers in poverty, it also hampers wider economic growth. 

Allowing those earning between £100,000 and £125,140 to retain their access to childcare hours whilst introducing a 3% per-child surtax would generate between £330m and £700m in additional tax revenue each year. This additional revenue could then be used to end the tax cliff edge for carers by introducing a gradual 25% taper rate at a cost of £277m annually, encouraging carers to earn more without losing their allowance.⁶

Ensuring workers take home more of what they earn is only one side of the coin. Whilst we must encourage people to work, the state must ensure it creates the conditions for there to be sufficient work available. Our Labour government’s fundamental diagnosis – the UK must become a higher-wage, higher-productivity economy after years of stagnation – is sound. Investment in skills should raise productivity in a way that helps prevent unit labour cost racing ahead of output and pricing workers out of jobs.

Yet there needs to be an appreciation that employment adjusts more readily than wages, and skills more slowly still. Labour markets face a ‘trilemma’, constrained by a hard trade-off between pay, productivity, and protections for workers – which seemingly cannot all be simultaneously maximised, at least without sacrificing employment.

The solution is to lower the marginal cost of employing lower-paid workers – not by suppressing wages, but instead by rebalancing non-wage labour costs. The relative protections built in for younger workers (via the Employer’s NICs threshold for under 21s) and for lower income workers (via the rising Employees’ NICs threshold) were much overlooked by critics of the Chancellor’s first budget, but an increase Employer NIC thresholds targeted at the most precarious parts of the workforce, would encourage businesses to increase their hiring and reduce unemployment: We can encourage youth employment by expanding the Employer NIC exemption to all those under 25 for their first year in the job, making it easier to hire the next generation.

The great wealth tax debate

To our left, the Greens are promising that a loosely thought-out  wealth tax could fix every ailment our country is facing – although, given the Labour government is already putting additional investment worth £29bn into the NHS, £39bn into social and affordable homes, and over £15bn into public transport across the UK, it is not entirely clear what the Greens would spend these vast fortunes on.⁷ It is also unclear – particularly given consternation from the right over current levels of tax and spend – that higher taxation is either politically tenable, or the issue at hand. Reform UK is calling for sweeping tax cuts that would make even Liz Truss uneasy, let alone the damage it would do to market confidence in Britain and, in turn, our economy at large. 

Whilst our political opposition believes money freely grows on trees, or is secretly buried beneath the North Sea, we know that wealth is produced by working people. Therefore, any tax on wealth must be levied in a manner that is efficient, pro-growth, and most importantly achievable, bearing in mind that the means to identify and value assets – and actually collect wealth taxes – are substantially underdeveloped. 

At present, the Treasury lacks the capacity to correctly identify and, therefore, tax the wealth that resides in Britain. For instance, the Public Accounts Committee recently found that HMRC could not identify how much tax was paid by billionaires residing in the UK.⁸ When investigations do take place, it can take HMRC longer than 40 months conclude them. 

Before a wealth tax is introduced, there must be investment into building up the state’s capacity to levy taxation and conduct investigations at pace (which would also have the additional benefit of helping tackle the tax gap in the meantime). Furthermore, the government should also introduce an exit tax, bringing the UK in line with the other G7 countries (except Italy), and recouping some of the £500m in Capital Gains Tax lost each year when shareholders depart.⁹

To be truly sustainable, however, the proceeds of any tax on wealth must also help rebuild Britain’s eroded public wealth, which has tanked since the 1980s.¹⁰ A strengthened public asset base – whether that be infrastructure, public utilities or in-house services – could improve the state’s capacity to deliver visible and tangible change for people, challenge growing public disillusionment about its effectiveness, and help to create the conditions for sustained economic growth.

Progressive tax for thriving high streets and communities

High streets serve as the beating hearts of our communities, and their visible decline – the empty shops and tired buildings – is a stark reminder of the changing model of retail, the long-standing failure of business rates policy, the cost of the Conservatives’ stagnant economy, and the scarring from crises such as the pandemic. The revitalisation of our high streets is critical not only to local economic growth across Britain, but to restoring parts of a public realm which are crucial to people’s pride in place.

Many institutional high street landlords have failed to adjust for the devaluation of their high street businesses as a consequence of a pandemic-hastened shift to online retail shopping, resulting in a reluctance to reduce rents which further hamper their capital values. With few tenants and a difficult market, they are then disincentivised from investing in improving their properties. Smaller businesses, meanwhile, not only face expensive rents, but are also having to compete with large warehouse businesses operated by multi-national corporations. The current business rates system fails to appreciate this, and the recent attempt to reevaluate property value led to rates skyrocketing.

Tweaks to the business rates system have not been radical enough to reverse the rapid decline of our high streets. Smaller businesses must be given a fairer footing to allow them to compete, or at least co-exist, with the larger companies. Replacing the current £90,000 VAT cliff edge – which discourages businesses from expanding – with a gradual taper would generate additional revenue for business, whilst also increasing tax receipts. Additionally, because of the unique public benefits that high street shops provide to communities, high streets should be designated as Special Economic Zones, where the tax set and raised in those areas is earmarked for local investment. 

Whilst recent changes to multipliers made the business rates system more progressive in theory, significant rises in valuations post-pandemic rendered this shift largely moot in practice. In the immediate term, the government could make fuller use of the differential between retail, hospitality and leisure and ‘other’ property multipliers within the existing provisions of the recent NonDomestic Ratings Act. This could ultimately be funded through the creation of a ‘large distribution and logistics’ category, rather than grouping warehouses with offices and factories, reflecting their intensive economic footprint. 

Much has been made of the need to level the playing field between the high street and online giants. Some have suggested a more progressive slicing which eliminates the obvious, inefficient cliff edges in the system. However, broader questions should also be asked about whether the business rates system should be replaced, as per the ambition in our manifesto. The government should explore replacing business rates with a Land Value Tax which would remove the investment penalty baked into the current system, encouraging growth and investment in high streets.

Finally, council tax remains one of the most regressive taxes borne by working people in Britain. Based on property valuations frozen in 1991, it places a far heavier burden on households in modest homes than on those sitting on substantial, and often unearned, housing wealth. Recent extensions to the top end of the system in the form of the ‘mansion tax’, have marginally improved progressivity, but liabilities still fail to reflect contemporary property values. Revaluation alone is long-overdue and would ensure greater fairness. 

However, council tax revaluation would also be an opportunity to change its basis to that of a Land Value Tax, shifting the burden away from labour and investment and onto the underlying value of land – the component created not by individual effort, but by collective economic activity and public investment. Done carefully, with transitional protections for those on low incomes, such reform would reward work, support productive investment and thriving communities, and ensure that wealth – not wages – carries a fairer share of the load.

Noah Law has been the Labour MP for St Austell and Newquay since 2024.

Notes

1. Sarah Taaffe-Maguire, ‘Weekly real wage growth just £16 since 2010 but minimum wage one of the world’s highest - Resolution Foundation’, www.news.sky.com, 25 June 2024; Adam Corlett, It’s personal (taxation), Resolution Foundation, 27 October 2025. 
2. Public Accounts Committee, ‘Taxing the wealthy: HMRC does not know how many billionaires pay tax in the UK’, www.committees.parliament.uk, 16 July 2025.  
3. Christopher D. Carroll, Jiri Slacalek and Kiichi Tokuoka, ‘The distribution of wealth and the marginal propensity to consume’, www.ecb.europa.eu, March 2014. 
4. Antony Seely, ‘Income tax: freezing the personal allowance and the higher rate threshold’, www.commonslibrary.parliament.uk, 10 February 2026. 
5. Charlene Young, ‘What five years of tax freeze has cost you’, www.ajbell.co.uk, 7 April 2026. 
6. Ezra Cohen and Matthew Stubbs, Rates and wrongs: fixing UK tax cliff edges and tapers, Centre for British Progress, 25 March 2026. 
7. HM Treasury, ‘Spending Review 2025, www.gov.uk, 11 June 2025; Ministry of Housing, Communities & Local Government, ‘January 2026 progress update: Delivering a decade of renewal for social and affordable housing’, www.gov.uk, 28 January 2026; HM Treasury, ‘Biggest ever investment in city region local transport as Chancellor vows the ‘Renewal of Britain’’, www.gov.uk, 4 June 2025.
8. Public Accounts Committee, ‘Taxing the wealthy: HMRC does not know how many billionaires pay tax in the UK’, www.committees.parliament.uk, 16 July 2025.  
9. London School of Economics, ‘UK should have an “exit tax” like Australia and Canada’, www.lse.ac.uk, 8 October 2024. 
10. World Inequality Database, ‘The Declining Share of Public Wealth’, www.wid.world, September 2025.