Rachel Reeves is considering both tax rises and spending cuts in next month’s Budget. That’s because, according to a recent draft report by the independent Office for Budget Responsibility, Britain faces a possible £30bn “fiscal black hole” to keep the books balanced.
The Chancellor has said that higher taxes on the wealthy would be “part of the story”.
She also had choice words for her political opponents yesterday: “Last year, when we announced things like the non-doms, like the [tax increase for] private equity, like the VAT on private school fees, there was so much bleating that it wasn’t going to raise the money – that people would leave.
“The OBR will publish updated numbers on all of those things. And that scaremongering didn’t pay off, because this is a brilliant country and people want to live here.”
But is she planning for 26 November? Below our experts address the issue Reeves herself raised: higher taxes on the wealthy.
Kwasi Kwarteng: Fairness is meaningless if taxes don’t raise revenue
Are Budget taxes on the wealthy fair? Lord Kinnock clearly thinks so. In July, he proposed a 2 per cent tax on assets held by individuals over a £7m threshold.
He said that would bring in about £10bn a year. Such a measure, Lord Kinnock believes, would also show the country that the Labour is “the government of equity”. It would be “fair”.
The problem with this thinking is that the immediate challenge the Chancellor faces is that of raising revenue. If the tax measures fail to raise revenue, because enough rich people leave to avoid the tax, it will be ineffectual.
People will always argue about the likelihood of rich people leaving the country. The government will say that people are staying because they love being in Britain. That may be true for some.
But times have changed. The “rich”, particularly the “super rich”, are a lot more mobile than they were in the 1970s and 1980s. Modern technology means it is much easier to work from anywhere in the world.
Why has the price of Milan property increased 39.5 per cent since 2019? It isn’t because the weather has improved. By contrast, London’s property prices have increased 11 per cent in that period.
Before people scream “Brexit”, it should be pointed out that Paris property prices have actually decreased 5.2 per cent in that time.
Rich people are fleeing to Italy because they perceive that they will pay a lot less tax. That is the reality, unfortunately.
Taxes should raise revenue. That is their primary purpose. Fairness is a secondary consideration, however regrettable that may be.
Kwasi Kwarteng is a former Chancellor of the Exchequer and a columnist at The i Paper
Hugo Gye: The wealthy already pay more than others
It is well known by now that the tax burden in the UK is at pretty much record levels.
What is less well known is that for the average worker, taxes are much lower than they were a decade or two ago.
During 14 years of Conservative rule, the Government quietly ramped up taxes paid by the highest earners, while cutting the amount levied on most of us.
So when Rachel Reeves says that higher taxes on the wealthy “will be part of the story” of her upcoming Budget, it is reasonable to wonder whether that is genuinely fair.
Of course, it is the richest who can best afford to pay more. But they have already been squeezed a lot, leaving the state dangerously dependent on a small number of people for its funding.
If we want public spending to continue to increase, everyone bar the poorest will need to contribute more. It would be fairer for Reeves to raise income tax or VAT than to keep pretending that only the wealthy need to shell out for a growing state.
Hugo Gye is Political Editor of The i Paper
Vicky Spratt: In the Britain of 2025, it’s easy to see why people think taxes on the wealthy are fair
Britain faces tough economic times. Growth creeps up, then it goes down again. Inflation remains higher than anyone would like and, sadly for Chancellor Rachel Reeves, the IMF have said that Britain will likely face higher inflation than other countries in coming years because of food costs and energy prices. Let’s just not mention Brexit, OK!
For those who have the least, these costs feel enormous. And, naturally, it prompts the question of who should pay to plug the going holes in Reeves’ ever-changing budgets.
As things stand, people who earn more pay more income tax and National Insurance. But there are some elements of wealth that are not taxed. Property wealth, which has increased by almost £6 trillion over the last decade, is largely untaxed. This is in spite of the fact that homeowners who rode the historic house price inflation through the 2010s became incredibly rich almost overnight.
Over the summer, the Westminster rumour mill suggested that the Treasury had its eye on this. Will council tax soon be replaced with a property tax, as a way of land value capture? Many economists think it would be the right thing to do.
Whatever she does now, Reeves must heed the IMF’s warning: Britain faces the worst growth in living standards in the West because of our higher inflation.
People on low incomes face desperate choices. Do they heat their homes, eat or pay rent? People on middle incomes are struggling too. Can they afford to have children, do they relocate to buy a family-sized home? And, against that backdrop, it’s easy to see why growing numbers of people think that those who have become wealthy – whether by sitting on their assets or through work – should contribute more.
Vicky Spratt is Housing Correspondent of The i Paper
Grace Gausden: Taxing the wealthy is not as fair as it sounds
It might seem obvious that taxing the wealthy more would be the fairest thing to do in the current economic climate, especially to avoid piling more pressure on the average household, which has already faced years of stretched costs.This could come in various forms: a levy on people earning over a certain amount, clamping down on tax havens or applying National Insurance to investment income.Yet, it might not be as simple as it sounds. Any such move – on the whole – would be unpopular, difficult to implement and tricky to define.A wealth tax might sound simple in theory, but in practice it has struggled. Denmark, Austria and Iceland, for example, are some of many countries that introduced a wealth tax – and then scrapped it.Some of the reasons included people emigrating to avoid taxation as well as a lack of clarity on how exactly wealth should be valued.Those advocating for such a wealth tax say it is the fairest way of redistributing money that can help those in need the most. Yet others argue it would drive deeper divisions in society and further complicate an already complex tax system.Whether it is fair or not will depend on who you ask. For many people, yes, but for those affected, they will likely feel they’ve been taxed enough and may simply decide to take their money elsewhere.
Grace Gausden is Money Editor of The i Paper
Hamish McRae: If taxes on the wealthy rise too much, people will leave Britain
Rachel Reeves will try and tax wealth in the budget, but she will be clever enough to shut her ears to the cries of Labour outriders to bring in a wealth tax.
She still has a problem, though. Most wealthy people who’ve done well recognise the need to pay tax. But there comes a point where, if they feel unfairly attacked, they do have other options. Those options include either leaving if they’ve retired or making careers somewhere else in the world.
What the Chancellor may do is to increase property taxes via higher council levies, while her plan to bring private pension pots within the inheritance tax net from 2027 is a de facto tax on people’s assets.
But she knows about her problem. She knows people are mobile, and the richer they are, the easier it is for them to choose an alternative location – be it the Channel Islands, the Isle of Man, or further afield.
Ultimately, it comes down to a practical point about raising money that is beyond fairness: by attacking the wealthy, the Chancellor may actually end up getting less revenue.
Hamish McRae is an award-winning business and economics journalist
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