Chancellor Rachel Reeves has said she will put up taxes on wealthy people in her Budget on November 26. Asked whether higher taxes on the wealthy would feature as part of her November 26 statement, she said they would be “part of the story”. Her comments have sparked fears that she could be planning a wealth tax, which could hit people with expensive houses, large pension pots or ISA savings, or with assets such as luxury cars.
But experts are warning that this would actually make the UK poorer by driving billions of pounds out of the country. They point out that other countries have actually scrapped wealth taxes – because they don’t work. “There is clear evidence that a recurring wealth tax would be economically damaging to the UK,” according Oliver Jones, Head of Asset Allocation at personal finance experts Rathbones Group. He has produced an analysis showing such a tax would actually cost £600 million to set up, and £700 million to administer every year.
He explained that administrative costs are a key reason why so many countries have abandoned wealth taxes, and why the Labour government of the 1970s which promised a wealth tax never delivered it.
Unlike inheritance tax, which is levied at death, a wealth tax demands constant monitoring – even for those who ultimately owe nothing. Rathbones also notes that, since over a quarter of the UK’s billionaires, and an even higher proportion of the very richest, are foreign nationals there is a high risk their flight will diminish the ongoing value of any wealth tax.
Mr Jones said: “Such a tax would require annual valuations of complex and illiquid assets – including private businesses, art, and intellectual property – for thousands of individuals. This process would be costly to administer, difficult to enforce, and could create significant economic distortions.”
Rathbones also estimates that a least £100bn in assets could move abroad or into less productive forms if a wealth tax is imposed.
Since the 1990s, the number of rich countries levying wealth taxes has fallen by three-quarters, from twelve to just three. Spain and Norway raise comparatively little revenue through their limited wealth taxes, far less than UK advocates anticipate. Only Switzerland raises significant revenue from wealth taxation, but its entire tax system is structured differently, with minimal taxes on income, dividends, and inheritance.
After France announced in 2017 that it would replace its wealth tax with a property tax, the number of eligible taxpayers leaving the country fell to its lowest annual rate since 2005. And the number of wealthy taxpayers returning to France increased, rising to nearly 250 in 2018 from around 100 before the reform.
Simon Bashorun, Head of Advice at Rathbones Private Office, said: “Changes to the non-dom regime have already slowed the influx of the super-rich, and a wealth tax risk is accelerating an exodus of wealthy individuals from the UK. We have highly paid professional clients now looking to relocate to more tax-efficient jurisdictions like Dubai or Singapore. Many others may simply decide not to come here in the first place.
“In a world where countries are constantly competing to attract wealthy individuals and their tax dollars to bolster economic growth – something the UK is crying out for – we seem to be making it harder for ourselves to win,” Bashorun added.
Rachel Reeves has been put under further pressure ahead of next month’s Budget after official figures showed muted growth in August following a surprise contraction in July.
The Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.1% month-on-month in August and fell by 0.1% in July, in a revision to the previous estimate for no growth.
In the three months to August, GDP grew by 0.3% compared with 0.2% growth in the three months to July, the ONS said.
The latest figures come after the International Monetary Fund (IMF) earlier this week forecast UK inflation was set to surge to the highest in the G7 in 2025 and 2026.
While the influential economic body increased its UK growth forecast for this year, it reduced the prediction for 2026 amid concerns over the labour market.
The GDP data compounds the dilemma facing Ms Reeves as she prepares for a challenging November 26 Budget, with faltering growth adding to the headache and making it harder to fill the black hole in the nation’s finances.
Speculation is continuing to mount over impending tax hikes and spending cuts to address the public finance woes.
An HM Treasury spokesperson said: “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck.
“Working day in, day out without getting ahead.
“The Chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and cutting red tape to get Britain building.”