If cheery Denmark can cut taxes, why can’t the UK?
The Nordic country has a generous welfare state and yet is able to reduce the burden on its taxpayers. There’s a simple reason
Looked at from Britain, there is a lot to envy about Denmark. Mette Frederiksen, the country’s prime minister, is embarking on a third term after putting together a coalition of left-wing and centrist political parties, providing the kind of political stability lacking in the UK.
Denmark has also provided a template for Britain’s home secretary, Shabana Mahmood, who has been seeking to apply elements of the “Danish model” to control immigration and asylum. “We have learnt lessons from our international partners, including Denmark; fundamental reform to its system has seen asylum claims at a 40-year low,” she said in the House of Commons recently.
The Danes are also some of the happiest people in the world, vying with Finland and Iceland for that title, according to the World Happiness Report.
What you do not expect from Denmark, with its generous welfare state, are lessons in cutting taxes. And yet, that is what the new coalition government plans to do.
The country’s corporation tax rate is 22 per cent, three percentage points lower than the UK, but it plans to reduce it to 19 per cent over the next three years. That would match the pre-Covid low point for corporation tax in the UK — when the ambition was to have the lowest rate among leading economies — after which it was put up to 25 per cent, partly to pay for the pandemic and partly to fund more generous investment incentives.
Other tax cuts are also promised, notably abolishing Denmark’s two top income tax rates, a halving of the VAT rate on food, and its elimination on fruit and vegetables.
“It is crucial that Denmark remains competitive,” Frederiksen said last week when announcing the reductions in taxes. “At a time when other countries are putting up trade barriers, global competition is intensifying and energy prices are high, there is a need to do more to support Danish businesses.”
Many in Britain will see what they are doing in Copenhagen on tax as rather wonderful. The CBI’s director-general, Rain Newton Smith, said that with the business tax burden at a record level, UK firms were reaching “a tipping point”.
On income tax, nobody is talking about a reduction in rates, and the freeze on allowances and thresholds, due now to last until 2031, is increasing the income tax burden by tens of billions of pounds.
So, if we can emulate Denmark on immigration and asylum policy, or are seeking to do so, why cannot we not also do so on tax? Is the only way up for tax in the UK?
The short answer is that Denmark can contemplate tax cuts only because it has its public finances under control.
Denmark’s gross government debt is 28 per cent of gross domestic product and its net debt, according to its central bank, is just 7.6 per cent of GDP. The corresponding figures for the UK are 101 per cent and 94 per cent, respectively.
Denmark also runs a budget surplus — tax revenues exceeding public spending — and it was 2.9 per cent of GDP last year, with a projected figure of 0.9 per cent of GDP this year. The UK, in contrast, runs a large budget deficit: it was £129 billion in 2025-26, the fiscal year which ended in April, or 4.2 per cent of GDP. Denmark’s public finances are in good shape, while the UK’s clearly are not.
We should also perhaps be careful what we wish for on tax. Although Denmark’s proposed cut will take its corporation tax rate below that in the UK — banking and finance firms pay a higher rate of 26 per cent — this will not be true of other taxes.
Food, for example, is zero-rated for VAT purposes in the UK, while even halving Denmark’s 25 per cent rate, as promised, will leave the tax at 12.5 per cent.
As for direct taxes on individuals, even the proposed reductions will leave Denmark as a high-tax country. Danish taxpayers pay an 8 per cent labour market contribution and a 25 per cent municipal or local tax, even before income tax kicks in, initially at a 12.01 per cent rate, rising by a further 7.5 per cent rate at the so-called middle tax level.
A further 7.5 per cent kicks in with the “top” rate, and another 5 per cent with the “top, top” rate, recently introduced but now due to be abolished.
Before the proposed reductions, Denmark had the highest personal income tax rate in the EU, according to the Tax Foundation, with the additional problem that its highest tax rates kicked in at lower income levels than in many other countries.
The cuts unveiled last week may take Denmark’s income tax rates slightly below two of the EU’s other high-tax countries, France and Austria. They will not take them below those in the UK, or turn Denmark into a low-tax country.
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