UK Budget 2025: Fiscal deficit or democratic deficit? – The London School of Economics and Political Science

UK Budget Analysis: Alignment with Sustainable Development Goals

Report on Fiscal Policy and its Implications for SDG 10 (Reduced Inequalities)

The recent UK Budget demonstrates a cautious approach to fiscal reform, missing a significant opportunity to advance Sustainable Development Goal 10, which aims to reduce inequality within and among countries. The measures implemented failed to substantively address the disparity between the taxation of wealth and work, a critical component for achieving a more equitable society.

• Wealth Taxation: The Budget did not introduce comprehensive reforms to the taxation of wealth. Key proposals, such as reforming the capital gains tax regime, were omitted. This inaction perpetuates a system where unearned income from wealth is taxed less than earned income from labour, directly contravening the principles of SDG 10.
• Impact on High-Net-Worth Individuals: The decision to leave the top tax rate on dividends untouched and to forego increases in capital gains tax rates effectively shielded the wealthiest individuals from contributing proportionately to public revenue. This maintains existing economic disparities.
• Incremental Changes: While minor adjustments were made, such as increased taxes on some rental and dividend income, these were not substantial enough to create a meaningful shift towards a fairer tax system. The income tax threshold freeze disproportionately affects middle earners more than the top 1%, further challenging progress on SDG 10.

Domestic Resource Mobilisation for Public Services and SDGs

Assessment of Revenue Generation for SDG 1, SDG 3, and SDG 4

The Budget’s capacity to strengthen domestic resource mobilisation, a key target of SDG 17 (Partnerships for the Goals), is limited by its conservative tax policies. Adequate public funding is essential for the provision of services that underpin several SDGs, including No Poverty (SDG 1), Good Health and Well-being (SDG 3), and Quality Education (SDG 4).

1. Positive Policy Change for SDG 1: The abolition of the two-child benefit cap is a commendable step that directly supports SDG 1 by aiming to reduce child poverty. This policy demonstrates a commitment to social protection systems.
2. Future Funding Requirements: The report notes the inevitability of future tax increases to fund growing demands on public services. The UK’s current tax-to-GDP ratio remains below that of many OECD peers, indicating a need for a broader and more sustainable revenue base to support long-term investment in health, education, and social welfare.
3. Fairness as a Prerequisite: For future tax increases to be publicly acceptable and sustainable, they must be perceived as fair. This requires that the wealthiest contribute their share, aligning fiscal policy with the “leave no one behind” principle of the 2030 Agenda. The current Budget failed to establish this crucial groundwork.

Governance and Institutional Integrity in Fiscal Policy

Challenges to SDG 16 (Peace, Justice and Strong Institutions)

The process surrounding the Budget’s formation raises concerns regarding its alignment with SDG 16, which calls for effective, accountable, and transparent institutions. The influence of vested interests appears to undermine evidence-based policymaking, hindering the development of a tax system that serves the public interest and promotes sustainable development.

• Lobbying and Opaque Decision-Making: The report suggests that policy decisions, particularly regarding wealth taxes, are heavily influenced by powerful lobbying from groups with vested interests. This lack of transparency erodes public trust and contradicts the targets of SDG 16 related to reducing corruption and ensuring responsive, inclusive, and representative decision-making.
• Undue Influence on Policy: The ability of wealthy individuals and corporations to frustrate sensible, publicly supported tax reforms is identified as a significant threat to both economic fairness and democratic integrity. This dynamic confirms public perceptions that the system is structured to benefit an unaccountable elite, which is corrosive to the social contract necessary for achieving the SDGs.
• Recommendations for Future Reforms: To align with SDG 16, future fiscal policy development must be more transparent and insulated from the undue influence of special interests. Reforms should aim for simplicity, sustainability, and fairness, ensuring that policy is coherent and serves the long-term goal of national renewal for all citizens.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty: The article touches upon social protection policies by mentioning the abolition of the “two-child benefit cap,” a measure directly aimed at alleviating poverty for affected families.
• SDG 10: Reduced Inequalities: This is the central theme of the article. It extensively discusses wealth and income inequality, arguing that the current tax system disproportionately benefits the very wealthy while middle earners may face future tax rises. The text critiques the “under-taxation of wealth compared to work” and the failure to implement reforms that would reduce inequality.
• SDG 16: Peace, Justice and Strong Institutions: The article strongly criticizes the lack of transparency and accountability in the UK’s budget-making process. It highlights the “undue influence” of wealthy lobbyists on policy decisions, suggesting that institutions are not inclusive or representative, which undermines democracy and public trust.
• SDG 17: Partnerships for the Goals: The article discusses the need to increase tax revenues to fund public services, which relates to strengthening domestic resource mobilization. It compares the UK’s tax-to-GDP ratio with other OECD countries, pointing to the potential for greater revenue generation through fairer tax policies.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Under SDG 1 (No Poverty):
  • Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable. The article’s praise for ending the “scandalous two-child benefit cap” is a direct reference to a specific social protection policy change.
• Under SDG 10 (Reduced Inequalities):
  • Target 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality. The entire article is a critique of the UK’s fiscal (tax) policy, arguing for reforms like increasing capital gains tax and taxes on dividends to create a fairer system where “the wealthy are clearly not making the contributions that they should be.”
• Under SDG 16 (Peace, Justice and Strong Institutions):
  • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The article criticizes the budget design process as “opaque and chaotic,” where “decisions are made behind closed doors,” indicating a failure to meet this target.
  • Target 16.7: Ensure responsive, inclusive, participatory and representative decision-making at all levels. The text argues that policy arguments are won by “those with the most powerful backers and the deepest pockets” rather than through open, evidence-based discussion, suggesting decision-making is not inclusive or representative of the public interest.
• Under SDG 17 (Partnerships for the Goals):
  • Target 17.1: Strengthen domestic resource mobilization… to improve domestic capacity for tax and other revenue collection. The article discusses the need for “further tax rises in the future to fund the increasing demands on public services” and points out that proposed reforms to capital gains tax could yield “more than £11 billion per year in additional tax revenues.”

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• For Target 1.3 (Social Protection):
  • Indicator: The specific policy change of abolishing the “two-child benefit cap” serves as a direct indicator of an adjustment in the social protection system to extend coverage.
• For Target 10.4 (Fiscal Policy for Equality):
  • Indicator: The article implies several indicators through its critique of tax policy. These include the tax rates on different forms of income and wealth, such as capital gains tax rates, dividend income tax rates, and council tax on high-value properties. The disparity between taxes on wealth versus work is a key qualitative indicator of inequality in the fiscal system.
• For Target 16.6 & 16.7 (Institutional Accountability & Inclusivity):
  • Indicator: The article provides qualitative indicators of institutional weakness. The “undue influence” of lobbyists, the “opaque and chaotic nature” of the budget process, and the public perception that “the country is run in the interests of an unaccountable elite” are all measures of a lack of transparency, accountability, and inclusive decision-making.
• For Target 17.1 (Domestic Resource Mobilization):
  • Indicator: The article explicitly mentions the tax-to-GDP ratio as an indicator. It states that UK tax revenues will reach “38% of GDP by 2031,” which is “still well below the 43-44% tax-to-GDP ratios that we see in other OECD countries like France and Denmark,” suggesting a metric for measuring the capacity for revenue collection.

4. Table of SDGs, Targets, and Indicators

Source: blogs.lse.ac.uk