Reeves urged not to introduce annual wealth tax in November
Chancellor Rachel Reeves has been warned against introducing an annual wealth tax in her upcoming Autumn Budget.
The Institute for Fiscal Studies (IFS) think tank has cautioned Reeves that such as tax would face ‘huge practical challenges’, disincentivise saving, and push very wealthy to leave or not immigrate to the United Kingdom.
It said that an annual wealth tax would be a poorly-targeted way of taxing the large returns of wealth, with better options being better implemented taxes on capital income and gains.
“If the Chancellor wants to raise more from the better-off, a better approach would be to fix existing wealth-related taxes,” the IFS said.
Reeves is highly likely to raise taxes in the upcoming Budget to provide more fiscal stability and security, as currently, a downgrade to economic forecasts could eliminate her remaining headroom.
The IFS argues that any changes to tax policy should improve and simplify the design of the tax system, not worsen it through avoiding genuine reform.
Implementing a new tax on income might be politically attractive, the think tank said, but it would add unnecessary complexity to the tax system. A better and more straightforward solution would be to raise income tax, VAT, or NI contributions, although this would break Labour’s pledge that it would not raise these taxes.
Other recommendations included replacing business rates and stamp duty land tax on non-residential property with a land value tax, increasing council tax on higher-value homes, and reducing the tax gap for small companies.
“Labour’s pledge not to raise the biggest three taxes, if adhered to, seriously constrains options,” the IFS said.
“It would be difficult, but not impossible, for the Chancellor to raise tens of billions of pounds more revenue without breaking Labour’s manifesto promise not to increase National Insurance, the basic, higher or additional rates of income tax, or VAT.”
“Just because large sums could be raised elsewhere does not mean it would be sensible. Many of the tax-raising options outside the ‘big three’ would have particularly damaging effects on growth and welfare,” the IFS said.
