Another Magic Wand
The latest “big idea” in economics is wealth taxes. The claim: Britain’s collapsing public services and messy finances exist because the rich don’t pay enough, and governments are too timid to act.
I’m always suspicious of these kinds of fads. The right had its laffer curves, trickle-down theory and efficient markets. The left had universal basic income, modern monetary theory, and now — wealth taxes.
All are sold as magic wands. Wave one, and difficult choices disappear. They never have. They never will.
Why Wealth Taxes Are Popular
Polling shows voters love the idea. Given the choice between taxing the rich or cutting pensioners’ winter fuel payments, they’ll tax the rich every time.
But here’s the problem: everyone thinks “the rich” means someone else. Nobody thinks it’s them. They imagine the Monopoly man with the monocle footing the bill. In reality, the Monopoly man is you.
The UK already has four wealth taxes:
- Capital Gains Tax – profits on investments when realised.
- Inheritance Tax – levied on estates when passed down.
- Stamp Duty – paid when you buy property or shares.
- Council Tax – levied on property values.
Most readers will pay at least three of these during their lives. A new wealth tax would catch them too.
The OAP Problem
Wealth taxes are popular because people think someone else pays. Inheritance Tax is unpopular because people think they pay — even though most don’t.
But here’s the awkward truth: the majority of Britain’s wealth is held by pensioners. The people sitting on piles of taxable assets are overwhelmingly OAPs.
That’s why the outcry over winter fuel payments was so telling. People like taxing “the rich,” but not taxing their gran.
A general wealth tax would, in practice, be a tax on the old. If you think the noise over WFA was loud, wait until voters realise who would be hit hardest by a new wealth levy.
Why Reeves Won’t Do It
A Kinnock-style wealth tax won’t happen for two reasons:
- Competitiveness – Only 4 of the 38 OECD countries levy a net wealth tax. Labour is desperate not to spook investors.
- Data gaps – HMRC doesn’t even have the information to do it. Property and pensions aren’t tracked well enough. Building a new system would take years.
So Rachel Reeves won’t introduce a general wealth tax. But she will tax wealth more. She has to: Labour pledged not to raise Income Tax, VAT or National Insurance.
Her first Budget went after non-doms, farmers, private schools and private jets. It won headlines, but not much money.
Where She’ll Really Squeeze
Expect reforms to existing taxes rather than a shiny new wealth tax:
- Higher dividend taxation, especially at the top 39% rate.
- Cuts to pension tax relief for higher earners.
- Possibly a new top rate of income tax — edging dangerously close to breaking Labour’s manifesto promise.
Beyond that, a few “structural” reforms might tempt her:
- Ending VAT exemptions while cutting the headline rate to ~15.5%.
- Replacing the £100bn fuel duty freeze with new taxes on electric vehicles.
And if she is really brave/desperate a full revaluation of UK property to bring Council tax up to date. But there is a reason why not Chancellor has tried this for 30 years. It is political poison.
Why Raise Taxes At All?
Oddly, the economic case is shaky. GDP grew by 0.3% in Q2 — better than City forecasts. Britain remains the fastest-growing G7 economy, outpacing even the US. Borrowing costs have risen, but overall the outlook is healthier than a year ago.
So why the rush to raise taxes? Two reasons:
- The ONS is in a mess. Cuts and interference a decade ago left it broken. Data is unreliable — but it underpins government decision-making.
- The OBR isn’t confident in its models. Productivity forecasts in particular are shaky. The worsening financial picture may be more about spreadsheets than reality.
Which makes the whole thing faintly absurd. Britain risks higher taxes not because the money is needed, but because officials don’t trust their own forecasts. Reeves should have reformed the OBR before her first Budget. Now, under pressure from the markets, she may not get the chance.
Conclusion
Wealth taxes are popular because they feel painless — someone else always pays. In practice, that “someone else” is pensioners, not plutocrats. Reeves won’t introduce a headline-grabbing wealth tax, but she will keep turning the screws on existing taxes.
It’s less about economic necessity than political optics. The danger is we end up raising taxes to appease models and forecasts no one fully trusts.