The Nordic model is famous for three ideas: free markets, strong public services and high taxes. Free markets and strong public services are popular, but great public services come at the cost of higher taxes. There is, however, a choice between flat taxes or progressive taxation to raise money for these services.

Flat taxation

Flat taxes are easy to explain because there is not much to them. Regardless of whether you are are earning £1 or a million pounds you will both pay the same amount of tax. This is an extreme version but it is the basic idea, in the Nordic countries iti s not so simple but iti s closer to this flat tax model than the UK is. “High, but Flat Income and Payroll Taxes” is how the Tax Foundation describes this model, and it is very accurate.

They have this system alongside low taxes for businesses and capital meaning that whilst the system is not totally a flat tax system, it has the characteristics. However, there is an outlier in all of this in Denmark. The top rates for income tax, dividend taxes and capital gains taxes are actually fairly high. They also have an inheritance tax and a Land Value Tax in the mix.

The question is, why do people in the Nordic countries accept such high tax levels? In part because there are a lot of expenses that the Nordic countries cover, which people in the UK have to pay for out of their income. Capped childcare costs in Sweden, well, we just call them childcare costs. The great education system in Finland, middle and upper class families in the UK call it 11+ tutoring, moving to get nearer to a good school, and private tutoring or private school costs.

Progressive taxation

Flat taxation is something we are less used to in the UK, with progressive taxation being more popular. These systems are very different to one another. Progressive taxation means those with more money pay more tax than someone with less money. For example, if someone earns £200,000, they may pay 45% tax on the top part of their earnings; someone earning £100,000 may pay 40% and someone earning just £10,000 may pay nothing at all. This is due to our system of tax brackets, which means those earning more will end up paying more, well, in theory anyway.

It is in theory because not all income is taxed in the same way as it depends on how it is earnt. Capital gains tax is charged on things like shares, sales of second homes or selling valuable paintings. Income tax the rates are higher with a maximum rate of 28% for capital gains tax whilst the highest rate for income tax is 45%. Whilst the tax system in the UK is progressive, not all types of income are treated the same.

Learning from Denmark

Both the tax systems in the majority of Nordic countries and the UK have a way to go to ensure everyone pays their fair share. I have never been too keen on the idea that workers should simply have to pay large amounts of tax because it is more difficult to get businesses and wealthy individuals to do so. The problem is best summarised by Professor Mark Blyth when he was talking about the Wallenberg family, a family of bankers from Sweden “The Wallenberg family paid no tax and also sent their kids to Harvard, for money. See, the thing i,s the rich at the top, the very top, they always have an exit option. It is called cash”

I think the first part of the answer to this issue is something I mentioned earlier: Denmark and their Land Value Tax. Replacing council tax, business rates and stamp duty system with a single Land Value Tax will not only simplify our tax system, but it will also make it harder for people to avoid tax. It is very difficult to move land or to hide it. As a tax, it is more reliable than other taxes on wealthy individuals. That is why it needs to be up there in the top three taxes in the UK, the other two being on income and business.

The second area is how we fix our income tax system. As I mentioned earlier, those earning money from selling paintings or houses will pay less tax than workers most of the time. A solution to this is a Consolidated Income Tax where Capital Gains Tax and National Insurance are merged into income tax. This would mean they have to pay the same rates and would have the same set of deductions. It is simpler as well, removing multiple taxes, each with different rules. In Denmark, they have a 42% capital gains tax rate, which is closer to a single income tax than the UK.

The final part is perhaps the most important and it means looking at a global level rather than learning just from Denmark. The the idea of a global minimum corporation tax level proposed by Joe Biden. This would weaken the ability to go abroad that helps large companies and wealthy individuals to avoid paying as much in corporation tax.