Our UK tax system is widely criticised for its complexity, with numerous rules and loopholes. There are "Cliff edges", such as the withdrawal of personal allowances (if you're lucky enough to be earning over £100k) and the high-income child benefit charges. These can discourage additional work or income for certain groups (e.g. NHS consultants).
There's a cross-party agreement on the need for pro-growth tax reforms, including simplifying VAT, income tax, and corporation tax. The tax system has become more progressive (meaning those earning more, pay more tax) under recent governments, relying heavily on high earners.
The overall tax burden is at its highest since the 1940s, yet the median worker pays less tax on earnings compared to most other countries. Despite this, there's a widespread public belief across all income groups that they are overtaxed.
Recent reforms already targeting the very well-off included scrapping non-domicile tax status, increasing Capital Gains Tax to 24%, and closing inheritance tax loopholes. However, there's more to come.
A Wealth Tax?
The Labour government, under Chancellor Rachel Reeves, has not ruled out a wealth tax. Proposals include a potential 2 percent tax on net assets exceeding £10 million, estimated to raise £24 billion annually. This isn't quite as dramatic a wealth tax as former Labour shadow Chancellor John McDonnell who proposed a one-off 20 percent tax on the top 10 percent of the wealthiest UK resident's. That was six years ago. A year later a wealth tax commission was setup to check the feasibility of a one-percent one-off tax on people with over half a million pounds in assets.
A YouGov poll (commissioned by Oxfam) found 78 percent of the British public supports a 2 percent wealth tax on individuals with assets over £10 million, indicating strong public demand for progressive taxation.
Critics like the think-tank the Adam Smith Institute argue a wealth tax could deter investment, lead to capital flight, and incur high administrative costs, potentially harming the economy.
There are also Concerns about avoidance by the wealthy, leading to limited revenue generation.
One-off retrospective wealth taxes have been proposed as an alternative but face political and legal viability challenges.
Have other countries brought in a Wealth Tax?
Countries like Norway (the tax applies to assets over £130,000) and Spain (progressive tax 0.16 percent to 3.5 percent on assets above €700,000) have wealth taxes, but they often target middle-class individuals and can lead to capital flight. Switzerland's cantonal wealth tax raises significant revenue but exempts the super-rich.
Many OECD countries like France, Germany, Sweden have repealed wealth taxes due to limited revenue and negative economic impacts, with France replacing its wealth tax with a real estate tax.
Is the Wealth Tax being announced in the Autumn Budget?
The government faces a fiscal black hole, necessitating tax increases or spending cuts to meet fiscal rules. Chancellor Reeves emphasises adherence to two fiscal rules: balancing public spending by 2029-30 (Stability Rule) and reducing net financial debt while enabling growth-focused investments (Investment Rule). The OBR forecasts a reduction in GDP growth for 2025 (from 2% to 1%). So not looking good and the treasury now needs to raise more income (tax).
Reeves has pledged not to increase National Insurance, income tax, or VAT rates. Instead, she plans to raise £7.5 billion annually by 2029 by cracking down on tax evasion. Her options for raising £5-10 billion include closing loopholes and small tax increases across various areas, or raising one of the major taxes (though politically challenging).
Right now there's no definitive statement confirming a wealth tax being on the cards in a few months, but... with the current climate of fiscal challenges, public support, and Labour's existing tax reforms it could be a very real possibility for the Autumn 2025 Budget.