Will the government introduce a wealth tax – and how would it work?
High borrowing costs, weak economic growth and failed spending cuts mean tax hikes look likely this autumn. Will Labour introduce a wealth tax?


Ruth Emery
The government is in a tricky spot heading into the autumn. Last year’s Budget was supposed to be a once-in-a-parliament reset, with £40 billion of tax hikes announced in an attempt to balance the state’s books.
Since then, weak economic growth, high borrowing costs and failed spending cuts have eroded the chancellor’s so-called ‘fiscal headroom’. Further tax hikes look likely as a result.
With few places left to turn, speculation of a new wealth tax has been rising in recent weeks.
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At Prime Minister’s Questions on 9 July, leader of the opposition Kemi Badenoch accused Keir Starmer of “flirting” with a wealth tax and called on the prime minister to rule it out – something which he failed to do.
It is not the first time the topic has reared its head this parliament.
In October last year, a dozen Labour MPs joined a cross-party call for a 2% wealth tax on assets worth more than £10 million, claiming this could raise £24 billion per year for the government.
Former labour leader Neil Kinnock renewed calls for a tax of this kind in an interview with Sky News on 6 July. Trade unions including Unite have previously voiced their support for a wealth tax, as has the Green Party, Oxfam and lobby group Tax Justice UK.
Cabinet member Heidi Alexander told Sky News the idea was not discussed directly at an away day at Chequers on Friday, 11 July, however she refused to speculate on what measures the chancellor might announce in her Autumn Budget.
MoneyWeek contacted the Treasury, which also refused to confirm or deny. A spokesperson said: “Tax decisions are taken at the Budget and, as you would expect, we are not going to comment on tax speculation.
“We have made our manifesto promises to protect working people and we took the decision last autumn to deliver the change the British people voted for.”
How would a wealth tax work?
A wealth tax is effectively a levy on an individual’s total wealth rather than just their income. It could be applied as a percentage payable by individuals with assets over a certain level – either as a one-off or annually.
Campaigners including Tax Justice UK and a cross-party group of MPs have recently proposed an annual 2% wealth tax on assets over £10 million. Unite has campaigned for an annual 1% wealth tax on people who have £4 million or more, claiming this could raise £25 billion a year.
Unite took a gentler stance more recently in the aftermath of the Spring Statement, calling instead for a one-off wealth tax of 1% on the wealthiest 1% of taxpayers. The union said this would “wipe out the necessity of welfare benefit cuts”.
There are other options the government could also consider, if it decides to go down this avenue. In 2014, Labour advocated a mansion tax on properties worth £2 million or more.
Some experts think we could see further changes to existing taxes rather than a specific wealth tax. “It’s more straightforward to tinker with an existing tax than introduce a brand new one,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Coles points to council tax as one area that has the potential for tweaks – something which was reportedly considered by former conservative chancellor George Osborne in the previous decade.
“As chancellor, George Osborne was said to have considered creating new levels of council tax on pricier properties – adding more bands to hike the tax on the most expensive homes. It was eventually dropped as the Conservatives had pledged not to introduce a mansion tax, but the government could choose to explore it again.”
Capital gains tax (CGT) or inheritance tax (IHT) could also be considered as areas for further reform, as both are effectively a tax on wealth. The government announced new policies in these areas last autumn in an attempt to raise money.
In the past, rumours have focused on the potential for a ‘double death tax’ where capital gains tax is applied on top of inheritance tax when assets are passed on at death. Inheritance tax gifting rules could also be tightened up.
The problem with a wealth tax
A wealth tax might sound appealing to a government that needs to raise revenue, but it is far from a simple solution. As well as proving deeply unpopular with those impacted, there are operational costs and challenges that mean it might not be as lucrative as advertised.
“It is difficult to make the case that an annual tax on wealth would be a sensible part of the tax system even in principle,” said Stuart Adam, a senior economist at the Institute for Fiscal Studies (IFS). “Taxing the same wealth every year would penalise saving and investment.”
Determining how much wealth someone actually holds isn’t always straightforward either. “It would require the government to set up a new administrative apparatus to value wealth – and valuation would be extremely difficult for some assets, such as private businesses.”
It also comes with the risk that high-net-worth individuals leave the UK for more tax-efficient shores. For this reason, Reeves is already considering softening the non-dom changes announced in last year’s Budget, according to widespread reports.
Tax changes often prompt behavioural changes, which can lead to unforeseen consequences – and less tax revenue being raised than expected. High-net-worth individuals can afford financial advice and might find ways to structure their wealth to minimise the tax.
“The government might get around this by making it a one-off tax based on historic holdings, but that might not be seen as fair by those hit out of the blue by a tax bill. Making a one-off retrospective charge could undermine faith and confidence in the system,” Coles said.
“It could be particularly painful for those who are asset rich and cash poor, who could find themselves with a huge bill and no way of paying it.”
Another risk is that households are put off building wealth beyond a certain level – or alternatively start spending it before they cross the threshold.
Would a wealth tax really raise £24 billion a year?
A cross-party group of MPs has previously suggested a 2% wealth tax could raise £24 billion per year, while Unite has said an annual 1% tax on those with £4 million or more could raise £25 billion. Critics are sceptical about these figures.
Commenting on the topic earlier this year, Chris Etherington, private client partner at the tax firm RSM, said: “Whilst an annual wealth tax might theoretically raise the sums advertised, the reality is that this is highly uncertain. It would be difficult to administer and it could result in many taxpayers changing their behaviour to avoid the charge.”
Former pensions minister Baroness Ros Altmann added that while a 2% levy sounds small, “it amounts to a huge sum for an annual payment”. It could be enough to push some people elsewhere.
“It would undoubtedly drive people away from building assets and wealth here or domiciling a business here, and would increase the flow of emigration that could amount to a brain drain if [the wealth tax is turned into] an annual payment,” she added.
Sweden, the Netherlands and France are all examples of countries that have abolished wealth taxes in the past, with some citing capital flight as a key reason. While 12 countries had net wealth taxes in 1990, this has since fallen to just four, according to a 2018 report from the OECD.
“Decisions to repeal net wealth taxes have often been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals,” the think tank said.
“The revenues collected from net wealth taxes have also, with a few exceptions, been very low.”
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Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.
Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.
Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.
Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.
- Ruth EmeryContributing editor
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