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Economist Lord Layard has devoted his working life to the study of happiness. Writing books on well-being, founding a campaign called Action for Happiness and launching a well-being report at the World Economic Forum in Davos, the 90-year-old Labour peer has come to a conclusion: higher taxes make people happier in the long run.

Taxes are often a difficult talking point for Labour.

In the recent general election campaign, for example, the Conservatives’ losses were mitigated by warning wavering Tory voters that Labour, according to precedent, would raise taxes if in power. But Layard argues that the only way the new Labour government can make Britain happier and more prosperous is by raising taxes to fund public services.

In a pre-election speech, he said he was “pretty confident” that current Treasury Secretary Rachel Reeves understands this philosophy.

“We really need to get away from a situation in Britain where people don’t mention services and taxes in the same breath, they mention them in two breaths. They want the services but they think taxes are robbery,” he says from his office at the London School of Economics (LSE).

“This is a completely hopeless way of thinking. Taxes are a way to help the community provide a service.”

Layard warns that this debate about raising taxes should not be “conducted under the surface, which is how governments usually swallow up the amount of tax”. Would Reeves, who has just got her feet under the desk at Number 11, be prepared to talk openly about raising people’s taxes?

“I know it,” he says determinedly.

In her first speech as Chancellor, Reeves declared that she would “not hesitate” to “deliver growth”. But to think that government is set up to grow the economy is “complete nonsense”, Layard said. Instead, Labour should be delivering happiness. “It’s not that the role of government is most naturally focused on the economy, as many people think,” he said. “And it’s in many ways easier for government to influence things like mental health, through good mental health services, through good life skills, through education and so on.”

We really need to get away from a situation in Britain where people don’t mention services and taxes in the same breath

Layard points to an annual survey from the Office for National Statistics (ONS) to prove his point. Each year, the ONS asks hundreds of thousands of people in the UK how satisfied they are with their lives. When asked about the source of that happiness, the order of priorities is roughly the same each year, Layard says: mental health first, then physical health, relationships, community and the environment. Finally, income.

“I think it is very important that we get revenue in return, and that the next government gets revenue in return,” he says, adding that it is “absolutely absurd” to point out that taxes are at their highest share of gross domestic product since World War II.

“Once you get to a reasonable level of physical existence, things like mental health, relationships (which are heavily influenced by the way you’re taught in school, how the community is structured, and so on) become relatively more important than adding to family income,” he explains.

While Keir Starmer spoke little about happiness during the campaign, Layard was encouraged to hear Labour pledge to give “mental health the same attention and focus as physical health” in its manifesto. But “the most effective” way to increase happiness, he says, is through education. He works backwards, explaining that poor mental health is driven by poverty, which in turn is driven by low pay. The best way to increase pay? By providing education to those who don’t go to university.

“I think the biggest problem facing the country is the shocking way we neglect post-college education for people who don’t go to college,” he says.

“If we ask ourselves why our productivity is so low, why we have so many people on low wages, why we have low social mobility, it is all because we are completely failing to get the post-school education of people who don’t go to university.”

In 2009, Gordon Brown’s government established that any qualified person would be eligible for a level three apprenticeship, which is now equivalent to A-levels. However, this was withdrawn the following year. “The starting point is to reintroduce that principle, and everything else will follow from there,” the peer says.

He says he had found “a lot of sympathy” for the idea before the election, with Reeves, Education Minister Bridget Phillipson and Home Secretary Seema Malhotra all interested.

To fund this, he suggests that Labour could use the money saved by fewer primary school pupils in the education system. “There will be a huge amount of money saved in primary education because primary school numbers are falling so much, and that would be more than enough,” he explains. “The savings there would be more than enough to fund a pupil guarantee that comes into effect towards the end of the parliament.”

The biggest problem facing the country is the shocking way we neglect the post-school education of those who do not go on to college.

In a post-election catch-up, Layard said he was pleased to see Starmer pledge to guarantee training, apprenticeships or help finding 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 2009 one, and a source close to Layard later said the peer “will be pushing for their plan to be more in line with his policies”.

Layard is currently co-director of the Community Wellbeing programme at the LSE, which evaluates government policy to determine which areas offer the best value for money. He says this “should be the basis for what Labour decides in the first year”. “Labour has essentially committed to a spending review in the first year,” he explains. “And what they need is evidence of what the benefits are of spending £1 on roads instead of £1 on police officers instead of £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 set up under David Cameron and credited with influencing policy levelling, was closed due to budget cuts. But reviving the agency should not be a top priority for Labour, Layard suggests. Instead, it will be crucial to “bring skills and wellbeing analysis closer to the heart of government”.

To do this, he says, the government’s evaluation task force, which has been evaluating policy since 2020, could be developed. He adds that a newly strengthened data science team in the Ministry of Finance should transform into “another center of excellence.” “I would like to see expertise in well-being systematically developed across the government apparatus, with the Cabinet and the Ministry of Finance obviously taking the lead.”

Ultimately, Layard argues, it is in Labour’s interests to prioritise wellbeing.

“We can show that when people are happier, they are more likely to re-elect the current government.” But with so many policy areas needing attention, will Labour struggle to prioritise the areas that will deliver immediate returns to public welfare?

“What Keir says is right, that a lot of these issues are not going to be solved overnight; it’s going to be a slow process,” Layard agrees. “But you can feel happy if the process is going in the right direction.”

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