Chancellor Rachel Reeves has been cautioned against implementing a tax raid on pensions or introducing an annual wealth tax, as she seeks to address a fiscal black hole of at least £30 billion ahead of the upcoming Budget. The Institute for Fiscal Studies (IFS) advised that restricting income tax relief on pension contributions “should be avoided” and reiterated its opposition to an annual wealth tax, which it argued would penalise savers, as well as increasing stamp duty.
The IFS suggested that the chancellor could raise tens of billions through tax reforms without breaching Labour’s manifesto pledges, but urged her to avoid “half-baked fixes” to the UK’s economic challenges. They noted that a one-off windfall tax on existing wealth, implemented as an “unexpected and credibly one-off assessment,” could be an economically efficient way to generate revenue without altering future behaviour.
The warnings come amid reports that the government is considering targeting wealthier individuals to balance the books, following estimates of a public finance shortfall between £30 and £50 billion due to sluggish productivity, policy U-turns, and higher-than-expected interest payments. The IFS report called for a comprehensive overhaul of the tax system, including reforming council tax, which it described as “regressive” and based on outdated 1991 property values.
Senior research economist Isaac Delestre stated that Reeves would have “fallen short” if she focused solely on revenue without wider reform. “Almost any package of tax rises is likely to weigh on growth, but by tackling some of the inefficiency and unfairness in our existing tax system, the chancellor could limit the economic damage,” he said. The IFS emphasised that the Budget should take “real steps” toward a more rational tax system.
However, cabinet divisions have emerged, with some ministers warning that further measures targeting the wealthy could accelerate an exodus of wealth from Britain. They cited previous actions such as abolishing non-dom status and imposing VAT on private school fees as “anti-aspiration” policies harming the country. Additional measures reportedly under consideration include a property tax on high-value homes and a new bank profits tax.
