Simon Roue unpacks the implications of high tax rates, the Laffer Curve, and whether we're approaching the tipping point where increasing taxes becomes counterproductive.

There’s been a lot of noise lately about the UK’s 'tax take.' One headline figure doing the rounds: the Office for Budget Responsibility (OBR) expects around £31bn less capital gains tax over this Parliament following recent rate changes. Whether you celebrate or worry about that depends on where you sit, but it raises a familiar question:

At what point do higher tax rates become counterproductive?

The Laffer Curve in plain English

If tax rates are 0%, the Government collects £0.
If tax rates are 100%, the logic says the Government also collects £0, because no one would willingly generate taxable income if they kept none of it.

Plot tax rates on the X-axis and total revenue on the Y-axis and you get a curve: revenue rises with rates up to a peak, then falls as rates keep climbing. That’s the Laffer Curve. The debate isn’t about whether the curve exists, it’s about where the UK is on it right now for different taxes.

Are we past the peak for some taxes?

That OBR projection on capital gains suggests we may already be seeing the curve’s 'down slope' in action for CGT. When rates or rules change, people adapt by deferring disposals, holding assets longer, offsetting gains, or relocating. If enough people change behaviour, receipts drop even as nominal rates rise.

The same strategic behaviour applies elsewhere:

• Income tax. Ministers have said headline rates won’t move. But thresholds, bands and reliefs are powerful and people respond to them. Freeze them and you drive fiscal drag; hike them too far and you can dampen work incentives or prompt planning that reduces the expected yield.
• Non-dom reforms. You can raise the headline liability on globally mobile people but some will simply leave. If a smaller number of high earners stay to pay more, the Exchequer can still end up behind.

The core point: you can’t keep 'soaking' the same base and expect static behaviour. People, businesses, and capital move.

“It has to be growth”

If pushing rates and rules harder risks shrinking the base, the sustainable path is growth, more jobs, more investment, more transactions, more taxable activity.

But growth can’t be wished into existence. Policy choices matter:

• Employer costs. Increases to Employer National Insurance and other employment costs don’t just hit margins; they shape hiring decisions. For small firms, each new role must clear a higher hurdle. We feel this as a small business: every hire is a serious calculation when the all-in cost of employment rises.
• Business investment. Corporation tax changes, capital allowances, and compliance friction nudge the go/no-go on projects. Tip too far and businesses delay or scale back.

Get the balance wrong and you risk hitting the buffers quickly: lower activity, weaker receipts, and tougher choices later.

What you can do now (without crystal-ball gazing)

You can’t control policy but you can control your plan.

For individuals (especially expats/global professionals):

• Residency and timing: Map your UK statutory residence position early. Sequence bonuses, vesting, dividends, or asset disposals across tax years deliberately.
• Capital gains: Consider use of allowances/losses, disposal timing, and the interaction with overseas tax so you don’t create double charges.
• Mobility decisions: If you’re weighing a move, align immigration, employer, and tax-residence timelines. Treaty reliefs and split-year rules can be valuable, if you meet them precisely.

For business owners:

• Hiring & reward mix: Model the full employer on-cost and explore remuneration structures that fit cash flow and retention goals.
• Investment cadence: Stress-test capital spend and financing under a range of tax scenarios; don’t rely on one Budget outcome.
• VAT & compliance: Watch thresholds, sector reclassifications, and digital reporting. Small tweaks can have large cash-flow effects.

The bottom line

Higher rates don’t always mean higher revenue. Behaviour adjusts. Mobility matters. If the goal is a healthier tax take, growth will have to play a central role alongside carefully targeted, credible tax policy.

Until then, clarity beats speculation. If you’re making decisions about where you live, work, invest, or hire, get a plan you can execute with confidence, so you pay the right tax in the right place at the right time.

This post is general guidance, not personal tax advice. Always take advice on your specific facts.

Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.