Arthur Laffer, a former economic adviser to three US presidents, has warned Andy Burnham that Britain is in a ‘death spiral‘ driven by excessive taxation, as the Laffer Britain death spiral intervention landed alongside a surge in government borrowing costs to their highest level since the 2008 financial crisis. Laffer published the warning in The Telegraph ahead of a visit to the UK, arguing that the government’s fundamental problem is not a shortfall in tax revenue but a failure to generate growth.
‘I have never heard of an economy being taxed into prosperity,’ Laffer wrote. ‘What’s happening is, Britain is taxing itself into death. Your problem is not too little revenue. Your problem is too little growth, too little prosperity.’
Laffer advised Ronald Reagan, Bill Clinton and Donald Trump on economic policy. He is best known for coining the Laffer Curve, the theory that tax revenues begin to fall once rates are pushed beyond a certain threshold. His intervention comes ahead of the October Budget, which he warned could deepen the perception that the government is losing its grip on the public finances if Burnham opts for another round of tax increases.
Laffer Britain death spiral: the policy prescription
Laffer’s criticism was not confined to a general warning. Writing in The Times, he set out specific proposals for reversing the trend, including abolishing national insurance for employees in Year 1, with the same relief extended to others between Years 2 and 10. The phased approach reflects the scale of the fiscal change he is advocating, and stands as a direct counterpoint to any Budget measures that would add to the existing tax burden.
‘I would love to see Britain become prosperous. That’s my dream,’ Laffer wrote in the Telegraph. ‘But your record is not illustrating a good set of policies. It’s really indicating exactly what you see when an economy gets in the death spiral.’
Bond market rout adds pressure on Burnham
The timing of the death spiral warning coincides with a sharp deterioration in UK government borrowing conditions. Global bond markets came under pressure in recent weeks as investors acted on fears over inflation linked to the Iran war and heavy spending on artificial intelligence.
The initial shock hit the US Treasury market in mid-August, prompting Treasury secretary Scott Bessent to announce an emergency measure to double the volume of government bond buybacks. The rout subsequently spread to Britain: the yield on the 10-year gilt climbed to 5.294 per cent, the highest level since the 2008 global financial crisis.
Rising gilt yields push up the government’s borrowing costs and tighten the fiscal headroom available to the Chancellor. The bond market turbulence threatened to overshadow the opening of Burnham’s first parliamentary session as Prime Minister, prompting him to pledge that his administration would be ‘grounded in fiscal responsibility.’
Lord Jim O’Neill, a former economic adviser to Burnham who turned down a formal role in his government, urged the Prime Minister to act quickly to restore investor confidence. Bond markets would respond positively, O’Neill said, if Burnham took ‘credible action to deal with the excesses of the triple lock or the excesses of welfare spending.’
The combination of soaring gilt yields and an internationally prominent economist calling the UK’s tax trajectory a death spiral places Burnham in a difficult position ahead of October. Any decision to raise taxes further risks reinforcing the narrative Laffer has attached to the government; pulling back would require the Chancellor to identify spending reductions that, as O’Neill’s remarks suggest, the markets are already pricing in as necessary. HM Treasury has not yet set out the full details of the Budget.
