UK’s Labour Government Discovers The Laffer Curve: Rising Taxes Bringing Diminishing Returns

A punitive tax raid on families choosing to pay to send their children to independent schools was supposed to raise £1.5 billion for government projects, but report claims it may cost the exchequer hundreds of millions. Somehow, this keeps on happening.

The UK’s left-wing Labour government’s bid to punish those who don’t fancy a state-controlled education may be spectacularly backfiring, a report by Dia Chakravarty (formerly of the Taxpayers’ Alliance) in The Daily Telegraph claims. Far from raising £1.5 billion from private school fees by levying new taxes — reckoning that anyone who can afford them is so wealthy they wouldn’t notice being taxed extra anyway — it is stated there has been an exodus from the private sector to state schools as the middling middle classes who could just about afford it have given up.

A double headache for the plan, therefore. The exchequer misses out on all that extra money they imagined they’d be getting, and has to fork out even more as the number of pupils to be taught in state schools on the taxpayer’s dime increases. Whoops.

Chakravarty’s article states:

Instead of extracting £1.5bn from private schools, Treasury analysis has suggested that the new tax policy could cost the Government an extra £650m per year.

Data published by the Department for Education last week revealed an exodus of over 11,000 pupils from private schools in England alone…

It all seems shockingly familiar. Again seeking to tax more without considering those pesky second order effects, the UK’s year-old left-wing government has also boosted taxes on the super wealthy, allegedly triggering a “millionaire exodus” of high-net-worth individuals to more forgiving climates.

It was reported back in January that the loss of 10,000 millionaires — as was claimed for 2024 — is the equivalent hit to the government of losing half a million average taxpayers.

There could be a lesson to be learnt for the UK’s Labour government, especially as The Laffer Curve marks its 50th birthday. After all, as President Reagan said: “If you want more of something, subsidize it; if you want less of something, tax it”.

It could just be the case that demand for private education and even living in London is price-elastic…