The Stats of the Nation: The Economy

Summary

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More or Less – "The Stats of the Nation: The Economy" (January 5, 2026)

Host: Tim Harford (BBC Radio 4)

Guests:

• Ruth Curtis (Chief Executive, Resolution Foundation)
• Helen Miller (Director, Institute for Fiscal Studies)
• Professor Mary Spurridge (Economist, Fraser of Allander Institute, University of Strathclyde)
• John Burn-Murdoch (Data journalist, Financial Times)

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Overview

This episode kicks off a special five-part series, with Tim Harford and guests tackling the numbers underlying the state of the UK, starting with the economy. They disentangle statistical truths from perception on topics like the cost of living crisis, wage and employment data, inflation’s winners and losers, government spending, taxation (with a special focus on Scotland), and the UK’s tax progressivity compared to other nations.

Harford and a panel of seasoned experts respond to listener queries, translate economic forecasts, and illuminate how the financial facts of recent years shape the big policy debates. Light-hearted moments and in-depth analysis balance to provide a clear-eyed, often sobering look at the forces shaping British prosperity.

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Key Discussion Points & Insights

1. The Cost of Living Crisis (01:19–07:57)

Definition and Duration

• Ruth Curtis: "There's obviously no formal definition... [but] it was probably the end of 2021 to mid 2023." ([05:06])
• While prices have stabilized somewhat, they remain high after successive shocks, disproportionately affecting lower income families.

Wages vs. Inflation

• Helen Miller: "It looks like this Parliament will be the second worst parliament on record for living standards, after only the last parliament where living standards actually fell." ([05:49])
• Even modest wage growth beating inflation lags behind historical expectations, keeping standards of living stagnating or dropping.

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2. Labour Market Data Woes & Employment Trends (06:12–07:57)

Uncertain Labour Market Data

• Helen Miller: "The ONS's Labour Force Survey has been struggling. People aren't filling it in to the same degree. So we know less than we would like to know." ([06:43])
• Unemployment is up (~5%), reflecting a weak (but not crisis-level) labour market.

New Data Approaches

• Ruth Curtis: "This isn't kind of mass firing, this is much more companies choosing not to hire... particularly strong in lower paid sectors like retail and hospitality." ([07:17])
• Young people are most affected by fewer low-paid job openings, partially due to higher minimum wages and recent tax changes.

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3. Economic Growth in Context (07:57–09:33)

Understanding 1.5% Growth

• Helen Miller: "1.5 is bigger than we've seen recently, but smaller than historically... small differences in those small numbers cumulate over time to have a huge difference." ([08:20])
  • For example, a 2% vs. 1% growth rate, compounded over a decade, adds up to an 11% larger economy.

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4. Government Spending, Borrowing, and the “Where’s All the Money?” Puzzle (09:33–14:09)

Rising State Spending

• Helen Miller: "Government spending as a share of national income is around 44%... the state actually is substantially bigger now than it was five years ago." ([09:56])
• Tax revenues are at a historic UK high, though not unusually high by international standards.

Debt Servicing’s Growing Slice

• Helen Miller: "We spend well over £100 billion now on servicing the national debt. If there were a department for servicing the national debt, it would be the second biggest... outside the NHS." ([11:04])
• Debt interest costs have soared (£65bn/yr more than a few years ago), squeezing public service budgets further.

Welfare and Health Spending

• Helen Miller: "Welfare spending is due to go from something like £300 billion... to £400 billion by the end of the decade." ([12:03])
• The rise is mostly in health and disability benefits and pensions, less so in other working-age benefits.
• Ruth Curtis: "The NHS... that's not surprising or unusual through time and with an aging and ailing population." ([12:53])
  • NHS spending and employment keep rising, now at 8% of the economy.

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5. Inflation Game: Which Prices Rose the Most? (15:38–18:17)

A playful quiz underscores that "inflation" hides sharp differences, depending on what you buy:

• Wages: Up ~26.5% since mid-2021.
• Overall Inflation: Up ~25%.
• Treats (Chocolate, sweets): Up 47%.
• Vegetables: Up 37%.
• Appliances: Up 9% (a real-terms fall).
• Tap Water: Up 54%.
• Gas: Up 75%.

Key Point: "For those who are spending a lot on heating their homes, it's not going to feel like [inflation and wage rises balanced out] at all." ([18:17])

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6. Tax Differences North and South of the Border: Scotland vs. Rest of UK (20:17–26:46)

• Scotland's devolved income tax system features more bands and higher rates for higher earners, but a slightly lower starter rate (19%).
• Median income and the 'Switching Point': While technically most Scots on lower incomes should pay less income tax (~£20/year) than in England and Wales, forecasts have sometimes understated median incomes. In 2023/24 and 2024/25, median incomes overshot the "switching point," so more than half actually paid more tax ([24:07]).
• Professor Mary Spurridge: "For 23/24 and 24/25 financial years, ... it is likely that the median has actually exceeded the level at which you pay more ... for those years, it's turned out not to be true." ([24:07])

Behavioural Response to High Rates

• Raising the top rate in Scotland: "90% of the revenues that you would get ... would be lost through behaviour." ([26:03])
  • Most of the expected increase evaporates as high-earners change their behaviour (e.g., spend less time in Scotland, arrange finances differently).

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7. How Progressive is the UK Tax System? (27:34–29:49)

Comparing to Scandinavia & Europe

• John Burn-Murdoch: "The top earners in the UK... pay quite similar taxes by this measure [share of income] to people in Denmark or Norway. Whereas the average worker in the UK pays much lower tax than those in Scandinavian countries." ([27:34])
• In Sweden, Denmark, Norway: the tax "gap" between average and top is smaller—UK has the biggest jump between middle and top earners (16 percentage points).
  • "By this measure, the UK actually has the most progressive upward sloping income tax regime in the developed world." ([29:01])
• The conservative government implemented much of this progressivity, largely by benefiting the "broad middle" (lower taxes), while cutting public service spending and welfare for the poorest.

Burn-Murdoch: "The wider, broader section of the population... benefitted in terms of their taxes being reduced and those gains ... outweighing the losses from reduced benefits." ([29:30])

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Notable Quotes

Cost of Living and Wages

• Ruth Curtis ([05:06]): "There's obviously no formal definition of what a cost of living crisis is... The real point is, prices don't fall after an inflation shock."
• Helen Miller ([05:49]): "This Parliament will be the second worst parliament on record for living standards..."

Public Spending & Debt

• Helen Miller ([11:04]): "We spend well over £100 billion now on servicing the national debt. If there were a department... it would be the second biggest."

Inflation Experience

• Tim Harford ([18:17]): "The experience of inflation is going to be very different. It all depends on what you buy."

Scotland’s Tax System

• Professor Mary Spurridge ([24:07]): "...for those years, it's turned out not to be true."
• Professor Mary Spurridge ([26:03]): "...when the very top rates in Scotland were increased... around 90% of the revenues... would be lost through behaviour."

Progressivity of UK Tax

• John Burn-Murdoch ([29:01]): "By this measure, the UK actually has the most progressive upward sloping income tax regime in the developed world."

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Important Timestamps

• 01:19 – Introduction to the series; Tim Harford explains focus and format.
• 05:06 – Ruth Curtis details the (lack of a) formal definition of "cost of living crisis."
• 06:43 – Discussion of gaps in ONS labour market data and implications.
• 07:57 – Economic growth: is 1.5% a "big" number?
• 09:56 – Helen Miller on big picture of government spending and debt.
• 12:03 – Welfare and health spending breakdown.
• 15:38 – The "More or Less Inflation Game": a playful look at differential inflation.
• 20:17 – Deep dive into Scottish vs. UK income taxes, with Professor Mary Spurridge.
• 27:34 – John Burn-Murdoch on the true progressivity of UK tax compared internationally.
• 29:01 – "Most progressive upward sloping income tax regime in the developed world."
• 29:49 – Wrap up and teaser for the next episode on the NHS.

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Memorable Moments & Tone

• Humorous banter about book promotion: "I've got ten books. No one's plugging my books. I wrote them myself..." (Tim Harford, [04:23])
• Game show interlude explaining price rises (lighthearted and relatable)
• Explainer clarity: Repeated emphasis on comparing small changes in growth rates and inflation over time ("small differences... can have really big effects")
• Balanced skepticism: Unafraid to challenge political claims (Scotland tax), always grounded in statistical evidence.

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Conclusion

This episode of More or Less provides accessible, numbers-driven coverage of the key dynamics shaping the UK's economy at the start of 2026: the lasting legacy of inflation shocks, subdued wage growth, gappy employment data, new pressures on government spending, and the arcane art of tax design—especially north of the border. Through a blend of wit and expert insight, Harford and his guests illustrate how policymaking, perception, and cold hard numbers intertwine in Britain’s ongoing economic story.

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Transcript

[A]

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[B]

Hello and welcome to the first of a special series of programmes for More or Less with me, Tim Harford. If you're listening on the radio, then don't worry you haven't gone through some strange kind of time vortex. It really is Monday and this really isn't Start the Week. The Lovely folks at Radio 4 thought it might be a good idea to start the year as we mean to go on well informed about the state of our nation. So they asked the team on More or Less to make five programmes, one for every day of the week, to answer a few of the big questions facing the uk. We've taken inspiration from the things that, according to reputable surveys, are the things that the people of the UK think are most important benefits. The health service, housing, immigration and a lot more besides. Radio 4 also told us that we had to stick in references to the programs we're replacing. So keep an ear out for that, ok? They didn't do that at all and they'll probably try to stop us if they catch us, but we thought it would be funny, so we're going to do it anyway. In any case, we've trawled through our inbox for pertinent questions, invented some impertinent questions of our own and assembled our Reporters and some super smart friends of the program to help us find clear answers whenever we can. Today the subject is the economy because it's kind of the context for everything else. Right, I guess we'd better start the week then. The human cost of Russia's full scale invasion of Ukraine in 2022 is obvious. But here in the UK, about 2,000 miles from the front line, the economic aftershocks continue to rumble. When the flow of Russian gas into Europe slowed, it precipitated a rise in the cost of energy and with it a rise in the price of just about everything else. Following on from the COVID lockdowns, the UK population found itself trapped between stagnant wages and soaring inflation. An unhappy place to be that came to be known as the cost of living crisis. Ruth Curtis, chief executive of the Resolution foundation, has looked in intricate detail at the long economic tale of this crisis in her book. Wait, Ruth, have you got a book? Cause the start of the week kind of depends on people flogging books. Tell me you've got a book.

[C]

Well, the Resolution foundation has a book, so as chief executive, I think I'm prepared to take some credit. Even though it started even before I.

[B]

Yeah, yeah, take the credit. That's great. That's excellent to hear. And also with us is Helen Miller. From the micro of salaries and food prices to the macro of government spending in the UK economy, the organization she runs, the Institute for Fiscal Studies, has been relentlessly analyzing the country's fiscal trajectory. Wait a minute, Helen, do you have a book out?

[D]

So I also don't have a book, but the ifs will have a book in April looking at inequality. So we are soon to have a book.

[B]

Okay, so both of you have not written a book and are claiming credit for a book.

[D]

Absolutely.

[B]

I've got 10 books. No one's plugging my books. I wrote them myself and I have a think tank to write my books. Anyway, never mind. Ruth, if I could start with you on the subject of the cost of living crisis. You know, it's all a bit start the week here. I think we need to lean more into our more or less roots, which means we need to hear from a loyal listener. And that loyal listener is Philip. Philip got in touch having seen signs of, dare I say it, spending in his local community, more people spending their cash in the garden centre, fancy cars on the roads. And he wanted us to ask, is there really still a cost of living crisis Timoth? I mean, is there even a definition of what a cost of living crisis is?

[C]

So there's obviously no formal definition of what a cost of living crisis is. I think if we think of the cost of living crisis as a particular moment where prices were rising very wages weren't keeping up with those price rises then broadly, it was probably the end of 2021 to mid 2023. But what we've had in 2025 is another period of quite high rises in prices and quite slow growth in real wages. And of course, the real point is prices don't fall after an inflation shock. The level of those prices is still higher. So particularly for those lower income families, they're still spending a bunch more money on essentials in particular, but than they were before Putin invaded Ukraine.

[D]

It's also worth pointing out that it's also compared to what people would expect. So historically we've got used to living standards rising more quickly and wages rising more quickly than inflation. It looks like this Parliament will be the second worst parliament on record for living standards, after only the last parliament where living standards actually fell. So even though wages are growing faster than inflation, by historical standards, they are still doing dismally.

[B]

Can we turn from prices to the labour market? There is a sense, at least in the conversation, the labour market is not working as well as we might hope, that people are finding it a bit harder to find jobs than they might have done. The trouble, of course, is that the data on the labour market is not what we would hope for. We've reported on more or less about how the Office for National Statistics has really been struggling to produce a good data set on this. So what do we know and how much confidence should we have in that?

[D]

So broadly? You're absolutely right to point out that the OMS's Labour Force Survey has been struggling. People aren't filling it in to the same degree. So we know less than we would like to know. Unemployment is running at about 5%. That is higher than we expect to be normal. So there are more people who are out of work, but who are looking for a work. In that sense, it's kind of a weak labour market for people who are looking for jobs. So absolutely not a crisis, but we should hope and expect to see that as the economy picks up, more people can find jobs.

[B]

I think the Resolution foundation have actually tried to compile an alternative to the Labour Force Survey, haven't they?

[C]

Yeah. So what we've tried to do is look at the admin data, the data that comes out of hmrc, rather than the survey data that the Office for National Statistics tend to use. So when we look at where does the admin data tell us these jobs have gone from, is particularly a lack of hiring. So this isn't kind of mass firing, this is much more companies choosing not to hire. It's particularly strong in lower paid sectors like retail and hospitality. And that fits with a story of some of this being caught caused by higher minimum wages and by some of the tax changes in the first budget of this government having an effect. And it also means we think it's having a particular challenge for young people who are looking for work because those low paid jobs are not hiring very much at the moment.

[B]

I definitely want to talk about macroeconomics, so let's start with the Office for Budget Responsibilities forecast. They reckoned that across 2025, and this forecast was released at the end of 2025, the UK economy would grow at 1.5%. So classic more or less question. Is 1.5% growth a big number?

[D]

Well, I think it's worth kind of orient ourselves whenever you're talking about growth in the economy. They're all small numbers in some sense. So you should be thinking of small numbers in that context. 1.5 is bigger than we've seen recently, but smaller than historically. So you pan back decades, we got used to a situation in which the economy grew by something like two, two and a half percent every year. Then post financial crisis, it grew by something more like, you know, half a percent or so, at least in terms of productivity. And now 1.5% is therefore better than what we've been doing recently, but smaller relative to the average. And to give a sense of sales in a very more or less style, to answer your question, small differences in small numbers can have really big effects. So to give you a sense of that, you, if you imagine that the economy grew by 2% rather than 1%, for example, then over five years the economy would be 5% bigger, over 10 years it'd be about 11% bigger. Pan out for something like 30 years and it'd be 50% bigger. So actually small differences in those small numbers cumulate over time to have a huge difference. So we should actually care quite a lot about whether it's 1.5 or 0.6 or 0.7. And nudging those things up would have a really big material effect on living standards over the medium run.

[B]

This is the beginning of an entire week of programmes of more or less. And we'll be hearing about the challenges that the UK is facing. So the prison system, the National Health Service, the benefit system, asylum, a lot of things are proving to be quite difficult because there just doesn't seem to be a great deal of money to go around. So can you give us the big picture on government spending?

[D]

So government spending as a share of national income is around 44%. So think of that as for every 44, every hundred pounds in the economy, the government is spending on our behalf. That's actually back to around, and I'm doing some rounding here, but around where it was around the financial crisis. What basically happened is the size of the state got cut back across the 2010s and then in recent years, so since before the pandemic, has jumped up by about 5 percentage points. So the state actually is substantially bigger now than it was five years ago. Along with that, so is tax revenues. So tax revenues are now at a level that is higher than any point in the UK's history. Not unusually high internationally, but we are raising more money. When historians look back at the 2000 and 20s, I think they will see it as a decade in which both in the size of the state jumped up, tax revenues jumped up, spending jumped up. So the puzzle in some sense is why in that situation does everything feel so difficult? I think there's a few things going on there. One is that debt interest spending has jumped up. We spend well over 100 billion now on servicing the national debt. If there were a department for servicing the national debt, it would be the second biggest department outside the National Health Service.

[B]

And that's debt has dramatically increased over the last 15 years or so, but at very low interest rates. And then suddenly the interest rates have jumped up and suddenly the kind of like. It's like having a massive mortgage and suddenly you come off your fixed rates and oops, it's exactly that.

[D]

So even relative to a couple of years ago when interest rates were lower, we're spending something like £65 billion more each year on debt interest. So that is spending that people aren't. It's not doctors and nurses and teachers. It's also the case that there have been some big pressures in spending on particular groups. So in particular, there's been a big rise in spending on disability benefits and a big rise in spending on special educational needs and disabilities for children. And of course, if you're in that system, you might be seeing that increased spending, but not everyone's seeing it. So partly with spending more, but concentrated on those smaller groups.

[B]

So those are big percentage rises, but do they contribute in a significant way to the deficit? I mean, what sort of figures are we talking about?

[D]

They absolutely contribute. So to give you a sense of scale, again to orient ourselves, about a quarter of everything the government spends is on Social Security, broadly defined, it's about 180 billion on pensions, about 140 billion on working age welfare. And actually working age benefits have been about flat relatively recently. But that's a combination of big rises in health related benefits and falls in other benefits. Welfare spending is due to rise. It has risen about 20 billion in the last year. It's then forecast to keep rising. So again, give you a sense of scale over welfare spending is due to go from something like 300 billion at the moment to something like 400 billion by the end of the decade. So it's not the only thing happening. But that pressure around disability is one of material reasons why we're having higher spending overall.

[C]

And if I might just add, on welfare, it's not just the kind of the rise through time, which is, you know, welfare growing in real terms, which I would argue is something we probably should expect to some degree if we're to kind of maintain living standards. Across the population. It's reasonably flat as a share of gdp, it is growing slightly. That is, as Helen says, partly driven by the rise in health and disability. The other half of that rise is driven by increased spending on pension benefits. So it's those two things slightly offset by cuts to other working age welfare. I guess as you zoom out and talk about the public finances, the NHS is the other thing that has grown as a size of the state. And that that's not surprising or unusual through time and with an aging and ailing population. But that's now a very significant part of the story.

[D]

It's worth just underlining how significant it is. The government spends something like 200 billion on the NHS. It employs something like 6 million people. It's like 8% of the economy. I mean, the NHS is huge and therefore what happens to the NHS has a really massive effect on the size of the state. And in general, governments have for very many decades been increasing the size of the nhs. And there doesn't seem to be any sign of that slowing down. Partly because we've had this aging population that demands more and more expensive health and social care.

[C]

And that means that places like local government have got much less spending power than they had 2009, 2010.

[B]

Ruth, Helen, thank you very much.

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[B]

Now for something you definitely don't get on. Start the week. A game show. Everyone's talking about inflation, but it really isn't just one thing. It's a basket of many. So roll up, roll up. It's the more or less inflation game. We've worked out how much the price of various types of thing has gone up between the middle of 2021, when the inflation surge started, and October 2025. And all you need to do, dear contestant, is work out how much the price has gone up by percentages. Win prizes.

[D]

Tim, have we really got to do this?

[B]

Yes, you have, Lizzie McNeil. So over this time period, wages have gone up by about 26.5% and the inflation rate over the same period has been 25%. So not that different. We're just a tiny bit better off than where we started.

[D]

Yay.

[B]

But let's pick out some particular products. Let's start with an easy one. Treats. I'm talking chocolate, sugar, jam, syrups, sweets. Has the cost of treats gone up by more or less than overall inflation?

[D]

I'm going to say more.

[B]

You are right, it's more. There's been a 47% increase in treat prices driven by the soaring price of chocolate. Ok, next up, vegetables, including potatoes and tubers.

[D]

Oh, less.

[B]

No more. They are up 37% let's move out of the supermarket. What about white goods? Appliances, large and small?

[E]

This.

[B]

You are right. Appliances have gone up only 9%. So in real terms, a price cut. Finally, a few big ones. Basic ones. Tap water. More or less than general inflation.

[D]

More.

[B]

You're right. Water is up by a rather tasteless 54%. And lastly, gas. I'm not going to ask you whether it's more or less. That's too easy. We all know the price of gas has gone up more than general inflation. So give us a number. How much has gas gone up since July 2021?

[D]

52%.

[B]

Not too bad. It's actually up by 75%.

[E]

So did I win?

[B]

Lizzie, winning and losing is not the point.

[D]

Then what is the point?

[B]

The point is that, as Ruth Curtis was saying in our previous item, the experience of inflation is going to be very different. It all depends on what you buy. If you love chocolate, times are hard. And leaving our little game show to one side, we we know that people on lower incomes spend a bigger proportion of those incomes on energy. So while wage rises and inflation might have balanced out in general, for those who are spending a lot on heating their homes, it's not going to feel like that at all. Our national conversation about the economy, spending, borrowing and tax often looks at the UK as a whole. But that overlooks an important Scotland doesn't have the same tax system as the rest of the uk. Those tax differences are, as it happens, a source of pride for the Scottish government, led by John Swinney of the SNP. In early November last year, Mr. Swinney was facing First Minister's questions in the Scottish Parliament. Holyrood. Scottish Conservative Russell Findlay, the leader of the Opposition, kicked off proceedings by claiming that most workers in Scotland pay more than those in the rest of the UK who do the same job and earn the same amount. John Sweeney disagreed. The majority of taxpayers in Scotland are set to pay less than they would elsewhere in the United Kingdom this year. So that's the judgment of the independent Square Scottish Fiscal Commission. So which of them is wrong? Or could they both be right? To find out, I spoke to an expert, Professor Mary Spurridge, an economist and director of the Fraser of Alanda Institute at the University of Strathclyde. Let us begin with the basics. The Scottish government have different powers over income tax to the UK government. So what are those powers and how are they using them?

[E]

So income tax is what we would call a partially devolved tax. And since those powers were devolved in 2016, the Scottish Government has used extensive use of them to introduce quite a different income tax schedule in Scotland.

[B]

You can say that again. If you compare tables of Scotland's income tax rates and bans and the UK's, it's a completely different picture. For one thing, the UK has three tax 20%, 40% and an additional rate of 45%. Scotland initially adopted a five band system and later added a sixth. One obvious difference between the systems is that while in the rest of the UK, people pay a 45% income tax rate on income over 125,000 pounds, in Scotland, that rate kicks in much earlier for all income over £75,000. There are lots of other differences, large and small. One of them really matters for the claim we're talking about.

[E]

So in 2018-19, the Scottish Government introduced a five band income tax system. And essentially what that did was split up the basic rate into three bits, called the starter rate, the basic rate and the intermediate rate. And the starter rate was for roughly the first £2,000 of income over the personal allowance at 19%. So a little bit lower than the UK basic rate.

[B]

The UK basic rate, remember, is 20%. The Scottish government very slightly reduced from 20 to 19% the rate that people face on a small slice of their income. In cash terms, this reduced the tax bill of many Scottish taxpayers by about 20 pounds. So compared to the rest of the UK, Scots on lower incomes pay a little bit less tax, while those on higher incomes pay pay a lot more.

[E]

Ever since this five band income tax system was introduced in Scotland in 2018-19, you know, this has been the claim, the government have said that, you know, it's sort of designed so that you have this little tiny bonus of your £20 or so if you're under the sort of median income.

[B]

Ah, median income. Now we're getting down to the statistical heart of the topic. There are two crucial numbers to have in mind when we're trying to test the truth of this claim. The first is median income. This is the income of the lucky but average soul who happens to sit slap bang in the middle of the income distribution. Half of all incomes are lower than the median and half are higher. The other number is the switching over point at which you pay more tax in Scotland than you would in the rest of the uk. And the Scottish government's claim that the majority of Scottish taxpayers pay less tax than they would under the UK system is true. If this point is higher than the median income in Scotland, and this point is entirely a matter of policy, the Scottish government can Decide exactly what the number is by tweaking the tax rules. In order to ensure this point is higher than median income, the Scottish Government relies on forecasts for median income from the Scottish budget watchdog, the Scottish Fiscal Commission. But forecasts can be wrong.

[E]

Obviously, the closer you get to the switching over point, to paying more rather than less, the closer that is actually to the median income. So the less distance you have between meeting it and breaking it, the more chance there is that median income will turn out to be higher or lower than you were expecting in the forecast. And therefore, in theory, when we look back, it might not have been true in terms of the outturn data.

[B]

And this is exactly what has happened for the previous two financial years.

[E]

For 23, 24 and 24, 25 financial years, we can see that it is likely that the median has actually exceeded the level at which you pay more. So for those years, it's turned out not to be true.

[B]

Interesting. And so that happens because of good news, which is that median incomes are higher than expected, although I'm presuming that's in nominal terms. So that could be either because of real income growth or because of inflation.

[E]

Yes, and a lot of it has been because of inflation, but also because of the very strong earnings growth we've seen across the economy. And that has included things like very much higher public sector pay deals than were expected. And, you know, the public sector is larger in Scotland and has generally had more generous pay settlements than the rest of the uk. So that's also feeding into the very strong wage growth that we've seen in Scotland, particularly in 23 and 24.

[B]

Essentially, the Scottish government planned their budget and tax system to make this claim true, but not by a big enough margin.

[E]

So they have to balance up the fact that they want to give themselves space to meet this claim with the fact the more space they give themselves, the less revenue they get in.

[B]

The Government's trying to do the same thing this year. The current estimates do say they're on course to meet their claim, but the wiggle room is getting tighter. It. It would be no great surprise if the same thing happened again. You might be surprised that the Scottish government has to be so careful with where it sets the tax rates aimed at the middle of the income distribution. Since the rates on top earners are higher than elsewhere in the uk, you might think they have plenty of tax coming in and so plenty of room to play with. But as we well know, people change their behaviour in response to tax rises. They might work less or spend Less time in Scotland to avoid the Scottish tax rates. Big tax rates do not always equal big tax revenues.

[E]

Interestingly, when the very top rates in Scotland were increased a couple of years ago in the budget, the Scottish Fiscal Commission estimated that around 90% of the revenues that you would get on us if nobody did anything. So a static costing would be lost through behaviour. So that essentially it raised very little money, in their view. Now, that's just a costing for what was going to happen in the future. As someone who analyses a tax system, it can often be quite difficult to see what happens in practice, because it's difficult to know what would have happened in the absence of the policy change.

[B]

Interesting. But the estimate was that 90% of this revenue would just evaporate because of behavioural changes.

[E]

Yes, of all of these different types of behavioural changes, but yes, that 90% of it would be lost.

[B]

Setting tax rates needn't be taxing, but it turns out it is. Our thanks to Professor Marie Spurridge from the University of Strathclyde. We've got one final thought to leave you with in this first of our special programmes. Somewhat related to many of the things you've already heard, this one's about the UK's tax system, and it comes from John Byrne Murdoch, Financial Times data whiz and friend of the programme. For a long time now, folks in the uk, particularly on the left of politics, have looked across the North Sea, envious of the wonderfully egalitarian setups in Nordic countries such as Sweden and Denmark. But on one measure, perhaps people should be looking a little closer to home.

[F]

So the data we're looking at here is the share of someone's income that goes on taxes and social contributions. So that's not just income tax, it's things like national insurance or other countries, equivalent of that, both paid by the employee and the employer. And what that shows is that the top earners in the uk, those with the highest incomes, actually pay quite similar taxes by this measure to people in Denmark, for example, or Norway. Whereas the average worker in the UK pays much lower tax than those in Scandinavian countries.

[B]

There are countries, France, Italy and Belgium, where the top earners pay more than either here or Scandinavia. The slice of income paid in tax by Sweden's high earners is actually quite a bit higher than Denmark or Norway. But in comparing with the former Vikings, the most interesting difference for John isn't this. It's the tax paid by the average.

[F]

Worker, the gap in the percentage of tax on earnings paid by the average worker and the top earners in the UK is 16 percentage points. That's 29% of earnings for the average and 45 at the top. Whereas that gap between top and middle In Sweden is 13 percentage points. In Denmark it's 10 percentage points.

[B]

The average worker pays a lot less tax in the UK than they do in Sweden, Denmark or Norway.

[F]

By this measure, the UK actually has the most progressive upward sloping income tax regime in the developed world.

[B]

The big increase in taxes at the top of the UK income distribution was largely introduced by Conservative governments over the past 15 years who didn't shout about it. And while the rich were being squeezed, so too were the poorest in society who were most exposed to cuts in public services and tight budgets for benefits.

[F]

I mean, it was actually the middle, the wider, broader section of the population, including, I suspect, a lot of people listening to this, who benefited in terms of their taxes being reduced and those gains from lower taxes significantly outweighing the losses from reduced benefits.

[B]

Thanks to John Byrne Murdoch. And that's it for our first special programme of the week tomorrow. It's the big one, spending wise, the numbers behind the nhs. Think life expectancy, cancer, survival and a crowbar reference or two to a life scientific as ever. Please get in touch if you've seen a number you think we should take a look at. Our email is more or less BBC code. Until tomorrow, Goodbye. More or Less was presented by me, Tim Harford. The producer was Tom Coles with Nathan Gower, Charlotte MacDonald, Lizzie McNeil and Katie Sulliveld. The programme was recorded by Sarah Hockley and the series was mixed by James Beard, Neil Churchill and Sarah Hockley. The production coordinator was Maria Ogundelli and our editor is Richard Varden.

[D]

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