by Matthew Bowles, strategic partnerships manager at the Institute of Economic Affairs
The Chancellor’s Spring Statement had all the impact of a soggy firework – lots of anticipation, but barely a spark when it came to real policy changes. The most enlightening, but depressing, element was probably the warnings given by the Office for Budget Responsibility (OBR). The tax burden will hit a new record under Reeves from 35.3 per cent of GDP this year to a crippling high of 37.7 per cent in 2027-28. Combine this with growth forecasts being cut from two to one per cent, the future looks very dim indeed.
Within a mere couple of hours, responses from the statist left came trickling in, ignited by the minimal cuts to welfare. Member of Parliament for Blyth and Ashington, Ian Lavery, said the quiet bit out loud in a post on X – “There is always an alternative. Tax the rich.” Former leader of the Labour Party, Jeremy Corbyn, also criticised the cuts, suggesting that the current Government has chosen to “balance the books off the backs of the poor”.
Reeves can be applauded, however. Sensibly, she has ignored the common solution that resurfaces in times of economic difficulty: a wealth tax.
The idea of a wealth tax being imposed has been touted by campaign groups such as Patriotic Millionaires, who suggest that taxing the ultra-rich more would be a simple way to fund public services. Gary Stevenson, a former financial trader and member of the group has had great success peddling this argument on the media and on popular visual social media such as TikTok and YouTube. Yet, looking at European precedents, wealth taxes have consistently failed to generate meaningful revenue.
Take our cross-channel neighbours, for example. The Impôt de solidarité sur la fortune (ISF) was introduced in 1982 by socialist President François Mitterand and lasted until 2017, save for a three-year pause under Jacques Chirac. The ISF applied to all individuals with a net worth exceeding 1.3 million euros, but despite its sweeping scope, it contributed just 2 per cent of total tax receipts over its lifespan. Worse still, it prompted an exodus of wealthy taxpayers, with about 60,000 millionaires leaving France between 2000 and 2016. Emmanuel Macron eventually abolished the tax to stimulate investment and economic growth.
A broader trend across Europe confirms the unworkability of wealth taxes. In 1990, 12 countries had wealth taxes. Today, only three remain. Reports from the OECD highlight key issues, particularly for those who are asset-rich but income-poor. In a country like the UK, where property wealth is significant, ordinary homeowners could be disproportionately impacted. In London, even a modest one-bedroom flat can easily push someone into the millionaire bracket.
As previous TaxPayers’ Alliance research found, a wealth tax was last seriously considered in the 1970s but abandoned after fears from HM Treasury of causing a wealth exodus.
Beyond economic inefficacy, wealth taxes pose a logistical nightmare. Unlike income or consumption taxes, which are relatively straightforward to assess, calculating net wealth requires a constantly updated register of assets. Even if such a system were feasible, valuations of illiquid assets like property, art, and private business holdings would be inherently complex and contested.
Another major argument against wealth taxes is that they amount to double taxation. Wealth is typically accumulated from income that has already been taxed. Taxing it again discourages savings and investment, potentially reducing capital available for economic growth.
The UK already operates a highly progressive tax system. Contrary to the perception that the ultra-wealthy do not contribute enough, the top one per cent of earners contribute nearly 30 per cent of all income tax receipts. With a growing number of net beneficiaries and over nine million working-age adults being economically inactive in the UK, those sacrificing such portions of their income should be celebrated, not vilified.
Instead of pushing for a wealth tax, policymakers should focus on fostering economic growth - still stagnant since the financial crisis, encouraging investment, and cutting public spending. The UK is already experiencing its highest tax burden in 70 years, and this looks set to increase, as per the OBR. Debt has almost breached 100 per cent of GDP, and the government’s attempts to balance the books by stealth taxes rather than structural economic reforms will only exacerbate the problem. Hopefully, Rachel Reeves continues to hold out against the hard left of her own party – though with their persistence, it might feel more like trying to keep a labrador out of a sausage factory.