Why public sector income tax isn’t what it seems – by Dave Carrera
There’s a line we hear often from government figures when justifying their tax take:
“We raised X billion pounds in income tax last year.”
Sounds clear enough, doesn’t it?
But dig a little deeper — just past the headlines, past the slogans — and something odd starts to appear. Something most people never stop to think about:
How much of that tax was the government taxing… itself?
Let’s Walk It Through
Imagine the government takes £100 from you — a private sector worker — in income tax.
It then pays a public sector employee £30 in wages.
From that wage, it deducts £10 in income tax.
Now, HMRC adds it up and says:
“We’ve collected £110 in income tax!”
But here’s the truth:
That £10 wasn’t “raised” at all.
It was part of the original £100, looped back in.
It didn’t come from a business selling goods.
It didn’t emerge from trade or growth or risk.
It came from the same tax pot it supposedly replenishes.
So What’s Really Happening?
When public sector workers “pay tax,” what we’re seeing is not income generation — it’s cost reduction. It’s a discount on the wage the government just paid.
The full £30 wage didn’t cost the government £30 — it cost £20, because they’re clawing £10 back from their own transaction.
And yet… that £10 shows up in the official tax figures as if it were new money.
It isn’t.
This Isn’t a Dig at Public Workers
Let’s be absolutely clear:
Teachers, firefighters, paramedics — they do important work. They experience tax like anyone else. Their payslip shows deductions, and they have every right to feel taxed.
But systemically — at the macroeconomic level — their tax doesn’t behave the same way.
It doesn’t fund the government.
It just reduces the cost of keeping it running.
Why It Matters
This sleight of hand — whether deliberate or just quietly accepted — distorts the truth about how healthy our public finances really are.
When governments say,
“We raised £250 billion in income tax,”
they don’t separate what came from productive activity and what came from recycled payroll.
That masks:
- The real size of the private sector tax base
- The true cost of the public sector
- The level of dependency on borrowed or printed money
In short: it hides fragility behind a headline.
Final Thought
No one talks about this — maybe because it’s a bit abstract, or maybe because it makes too many people uncomfortable.
But if we’re going to have honest conversations about tax, spending, and the future of public services, we need to start with this:
Taxing yourself doesn’t count.
“Hope isn’t what they promise you. It’s how you carry on when they don’t deliver.” Dave Carrera
