Sweden is cutting taxes — why aren’t we?
Bold policies have been announced to boost the Swedish economy, Rachel Reeves could take a leaf out of their book
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Tax cuts for workers and pensioners, and VAT on food halved. A bonanza of tax cuts. No, this is not a dream: it is happening — just not here.
This is what Swedes can be looking forward to after the Scandinavian country’s budget for 2026 revealed tax cuts worth billions of pounds.
Sweden’s right-wing coalition has promised reforms costing 80 billion Swedish kronor (about £6 billion) including 51 billion Swedish kronor in tax cuts to get people spending and spur growth. The chancellor said the budget should boost growth to 3.1 per cent in 2026 — higher than the previous estimate of 2.6 per cent.
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The reforms will mean the typical family with two children are about 1,800 kronor (£142) better off each month, according to the Swedish government.
Tax cuts are, of course, easier to do if you have a strong headwind. The Swedish economy is in a very different shape to that of the UK — and the rest of Europe. The government debt is far lower at 33 per cent of GDP compared with 96 per cent in the UK.
Yields on Swedish ten-year bonds run at about 2.65 per cent. Meanwhile, UK gilts recently hit their highest in 27 years at about 4.76 per cent.
The UK doesn’t tax food like the Swedes, but that will be of little consolation for struggling families as food prices over here continue to soar. The UK is forecast to see the highest rate of inflation of the G7 advanced economies this year, according to the Organisation for Economic Co-operation and Development. And higher food costs are cited as one of the main factors.
Sadly, what’s happening in Sweden is far removed from what Rachel Reeves is feared to be planning for November 26, when more tax rises are expected to be announced. While she promised in her budget last year that it would mark the end of tax rises, speculation is mounting that she will go after pension savers or wealthy homeowners.
• The government must be honest about the need to reduce spending
The one thing we have in common with Sweden, though, is a need for growth and our chancellor is adamant that is her top priority. Reeves has vowed to kickstart economic growth and “put more pounds in people’s pockets”. But her reluctance to reduce public spending will always stand in the way of that promise. Taxing businesses, investors and households too much to prop up our ailing public services will not help to grow the economy. It will do the opposite.
The OECD warned on Tuesday that tough tax and savings plans would lead to sluggish economic growth in the UK over the next 12 months.
Going for growth is always a gamble, but it need not be reckless. Reeves needs to inspire confidence to get us out of this vicious circle of mounting debt and stagnation.
Cutting taxes can help but you have to tread carefully, of course. If you do so when debt is at an all-time high, it could make matters a lot worse because it could lead to unsustainable debt.
• Savers withdraw £18bn in rush to beat the tax grab on pensions
The chancellor’s election pledge to not increase any of the big four taxes — national insurance, income tax, VAT or corporation tax, which together contribute about two thirds of revenue — has backed her into a corner. But raising smaller taxes will not get us the revenue we need: instead it can have a detrimental effect on future growth. It’s a big price to pay for a tax raid that would not be nearly enough to plug the deficit.
Capital gains tax, stamp duty, inheritance tax and business relief have been easy targets for a chancellor desperate to stick to her promise to not tax working people. If she truly wants growth, she needs to leave them alone. A cut to some of the more minor revenue-raising taxes may even help. Times.
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