Resolution Foundation Urges Middle Class Tax Hikes for Defense

The Resolution Foundation has advised Chancellor of the Exchequer John Healey that funding the government's commitment to devote 3.5% of GDP to defense by 2035 will require tax increases for middle earners. In its report, Thin End of the Wedge, the think tank estimates that meeting this goal would require approximately £28 billion per year. The analysis found that employees earning the 2025 median wage of £33,000 have an effective tax rate lower than it was before the financial crisis, placing the UK in the bottom third of OECD countries regarding the tax burden on average workers.

Chief economist James Smith argues that politicians promising a larger state without increasing the burden on average workers are not being realistic. He suggests that because the benefits of increased defense spending are broadly shared, the tax rises needed to fund them should be as well.

Chancellor John Healey is scheduled to present his first budget on October 28, where he must identify roughly £1.4 billion annually over the next three years to support the current defense investment plan. This creates a conflict with Prime Minister Andy Burnham, who has pledged to adhere to the 2024 election manifesto by not increasing rates of income tax, VAT, or employee national insurance. The government is simultaneously facing pressures from rising debt interest costs, energy bills, and youth unemployment.