UK Chancellor's Wealth Tax Plans Given 'Zero Chance' Amid Funding Gap

Labour's proposed wealth tax faces "zero chance" of being introduced in the next UK budget, according to Andy Summers, associate professor at the London School of Economics. Chancellor Rachel Reeves may need to find £30 billion in her budget to plug a gap in the national finances, but a wealth tax is unlikely due to data collection issues and the risk of investors souring on the UK.

Labour's proposed wealth tax faces "zero chance" of being introduced in the next UK budget, according to Andy Summers, associate professor at the London School of Economics [1]. The UK's Chancellor of the Exchequer, Rachel Reeves, may need to find £30 billion in her budget to plug a gap in the national finances, but a wealth tax is unlikely due to data collection issues and the risk of investors souring on the UK.

Reeves may need to find £30 billion in her budget to plug a gap in the national finances worsened by costly U-turns on benefits forced on her by the governing Labour Party's rebellious backbenchers. Constrained by her own promises not to raise key taxes representing the bulk of the Treasury's tax revenue, and to abide by strict fiscal rules, attention has turned to where else she could find the money.

For many Labour backbenchers, the solution lies in a wealth tax, with figures on the left including the UK's longest-standing woman Member of Parliament, Diane Abbott, raising the issue in the House of Commons. Britain’s biggest trade unions also advocate such a move, and in the past week, Labour grandee and former leader Neil Kinnock, suggested ministers should bring one in.

Prime Minister Keir Starmer added fuel to speculation by declining to rule out a wealth tax this week. On Monday, his spokesman, Tom Wells, was asked multiple times about such a levy, responding: "the government is committed to ensuring the wealthiest in society are paying their fair share of tax." On Wednesday, Starmer himself failed to rule one out when asked explicitly to do so by opposition Conservative Party Leader Kemi Badenoch.

The risk for the government in even entertaining such a levy is that investors sour on the UK, especially after Reeves’ £40 billion tax hike at her last budget, that mainly targeted business, and a wealth exodus linked to her changes to the tax regime on so-called non-doms.

There are other obstacles. Summers said the government would need to collect data on the richest people in Britain and value their wealth. But HMRC, Britain’s tax authority, doesn’t know how many billionaires currently pay tax in the country, because there is no requirement in UK law to report total wealth.

Stuart Adam, a senior economist at the influential Institute for Fiscal Studies, backed up Summers’ view. "I can't see any way you could have a wealth tax up and running for the next couple of years at least," he said. An effective and comprehensive wealth tax would cover people’s property and pensions, and collecting the data and establishing the mechanisms to implement that would take “several years,” he said.

Summers said valuation is another barrier, describing as “not trivial” the costs of assessing wealth held in property and multiple other asset classes. As a result, his commission set out the need for a high threshold, such as taxing wealth above £10 million, because at lower levels, the costs could make it unfeasible.

The report found that changes to existing taxes were preferable to an annual wealth tax, but that a one-off levy could raise “substantial revenue” and be “economically efficient.” Levied at 1% for five years on assets valued at over £10 million, that could raise £43 billion, the authors said.

Nevertheless, Kinnock suggested a 2% levy on assets over £10 million — a level also advanced in the Commons in recent weeks by Abbott and fellow Labour MPs Richard Burgon, Andy McDonald and Rebecca Long Bailey, who was defeated by Starmer in Labour’s 2020 leadership contest.

There could be political upside for Reeves in entertaining the idea, because it would offer red meat to those on the left and so-called soft left of Labour who were instrumental in forcing the government’s about-turn this month on disability benefit cuts designed to save £5 billion a year. Some 126 backbenchers threatened to rebel, arguing a Labour government shouldn’t be cutting assistance for the most vulnerable.

However, wealth taxes have a poor track record when tried elsewhere. Countries including Germany, the Netherlands, Sweden and France have introduced wealth taxes in their history, only to then scrap them. A key problem where wealth taxes have failed is that various asset classes have been exempted, giving the wealthy options to circumvent the levies, Summers said.

"When you start to leave those gaps, the whole thing collapses," he said.

One option open to Reeves would be to declare plans for a wealth tax and begin the necessary preparation work, but that would risk sparking a further flight from Britain of the wealthy. Instead, Reeves should consider hiking other taxes that hit the wealthy if she wishes to raise revenues, according to Dan Neidle, founder of Tax Policy Associates.

"A wealth tax is a cute political slogan, but not a tax policy," Neidle said. "If we want to tax wealth more effectively, it makes much more sense to tighten existing taxes, such as capital gains tax and inheritance tax."

References:
[1] https://www.bloomberg.com/news/articles/2025-07-12/uk-wealth-tax-given-zero-chance-amid-cash-crunch-for-reeves
[2] https://www.mirror.co.uk/news/politics/keir-starmer-must-slap-wealth-35509044