Labour Economist: Paying More Taxes Will Make People Happier
7 min read
Labour peer and economist Lord Layard has spent years researching happiness. He tells Sophie Church why putting happiness at the heart of policy will keep Labour in power for longer
Economist Lord Layard has dedicated his working life to the study of happiness. Through writing books on wellness, founding an Action for Happiness campaign, and launching a wellbeing report at the World Economic Forum in Davos, the 90-year-old Labour peer has come to a conclusion: paying higher taxes makes people happier in the long run.
Taxes have often proved a difficult talking point for Labour.
In the recent general election campaign, for example, the Conservatives’ losses were mitigated by warning teetering Tory voters that Labour, by precedent, would raise taxes when in power. But according to Layard, the new Labour government will only be able to make Britain a happier, more prosperous place by increasing taxes to fund public services.
Speaking before the election, he says he is “quite sure” that now-Chancellor Rachel Reeves understands this philosophy.
“We’ve got to really get away from a situation in Britain where people don’t think of services and taxes in the same breath, they think of it in two breaths; they want the services but they think taxation is a robbery,” he says from his office at the London School of Economics (LSE).
“This is a completely hopeless way of thinking. Taxation is a way of helping the community to provide a service.”
Layard warns this debate about raising taxes should not “be done undercover, which is the way, typically, governments sneak up the level of taxes”. So would Reeves, who has only just got her feet under the desk at No 11, be willing to speak openly about raising people’s taxes?
“I’m sure,” he says firmly.
In her first speech as Chancellor, Reeves declared she “will not hesitate” to “deliver growth”. But thinking government is set up to grow the economy is “complete nonsense”, according to Layard. Instead, Labour should deliver on happiness. “It’s not the case that the government role is most naturally directed to the economy, as many people think,” he says. “And it is in many ways easier for the government to affect things like mental health, with providing proper mental health services, by having proper life skills, lessons in schools and so on.”
We’ve got to really get away from a situation in Britain where people don’t think of services and taxes in the same breath
Layard points to an annual Office for National Statistics (ONS) survey to prove his point. Each year, the ONS asks hundreds of thousands of people across the United Kingdom how satisfied they are with their lives. When asked for the source of that happiness, the order of priorities is broadly similar each year, says Layard: mental health first, then physical health, relationships, community and the environment. Finally, comes income.
“I do think it’s very important that we get income in its place, and that this next government does get income in its place,” he says, adding that it is “completely absurd” to point out that taxes are at their highest share of gross domestic product since the Second World War.
“When you’ve reached a reasonable level of physical subsistence, these things like mental health, like relationships – which are very much affected by how you’re taught at school, how the community is structured, and so on – these things become relatively more important at the margin than additions to household income,” he explains.
While Keir Starmer made little mention of happiness on the campaign trail, Layard was heartened to hear Labour pledging to “give mental health the same attention and focus as physical health” in its manifesto. But “the single most effective” way of increasing happiness, he says, is through education. Working backwards, he explains that poor mental health stems from being in poverty, which stems from low pay. The best way to increase pay? Providing an education for those who do not go to university.
“I think almost the number one problem facing the country is the shocking way that we neglect the after-school education of people who don’t go to university,” he says.
“If we wonder why we have low productivity, why we have a lot of people on low wages, why we have low social mobility, all of this is due to our complete failure to get to grips with the post-school education of people who don’t go to university.”
In 2009, Gordon Brown’s government legislated that any qualified person was eligible for up to a level three apprenticeship, equivalent to A-Levels today. However, this was repealed the following year. “The starting point is to re-enact that principle, and then everything else will follow from that,” the peer says.
He says he “found a huge amount of sympathy” for this idea before the election, with Reeves, Education Secretary Bridget Phillipson and Home Office minister Seema Malhotra all interested.
To fund this, he suggests Labour could use the money saved from fewer primary school students in the education system. “There will be a great chunk of money saved in primary education because the primary school student numbers are falling so sharply, and that would be quite enough,” he explains. “Savings on that would be quite enough to fund an apprenticeship guarantee coming into force by the end of the Parliament.”
the number one problem facing the country is the shocking way that we neglect the after-school education of people who don’t go to university
In a catch-up conversation after the election, Layard says he is delighted to see Starmer pledging to guarantee training, an apprenticeship, or help to find work for all 18 to 21-year-olds, and to create a ‘growth and skills levy’. However, Starmer’s plan is subtly different to Labour’s of 2009, and a source close to Layard later said the peer will be “pushing for theirs to be more along his lines”.
Layard is currently co-director of the Community Wellbeing programme at the LSE, which evaluates government policies to work out which area is best value for money. He says this should be “the foundation for what Labour decides in its first year”. “Labour’s committed to a spending review, essentially, in the first year,” he explains. “And what they need evidence on is what are the benefits of spending £1 on roads as opposed to £1 on police [officers] as opposed to £1 on mental health workers, teachers, etc. And that’s what we’re trying to provide.”
Last year, the What Works Centre for Wellbeing, a research agency founded under David Cameron and recognised for influencing levelling up policy, was closed due to funding cuts. But reviving the agency should not be a top priority for Labour, suggests Layard. Instead, getting “competence and wellbeing analysis nearer the heart of government” will be key.
To do this, he says the government’s evaluation taskforce, evaluating policy since 2020, can be developed. He adds that a newly strengthened data science team in the Treasury should transform into “another centre of excellence”. “I would want to see expertise in wellbeing developed systematically inside the government apparatus with obviously a lead being taken by Cabinet Office and the Treasury.”
Prioritising wellness will ultimately be in Labour’s interests, says Layard.
“We can show that when people are happier, they’re more likely to re-elect the existing government.” But with so many policy areas requiring attention, will Labour have difficulty in prioritising which will offer an immediate return on public wellness?
“What Keir is saying is right, that many of these problems can’t be solved overnight; this is going to be a slow process,” agrees Layard. “But you can feel cheerful if the process is going in the right direction.”
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