UK Government Unveils £40 Billion Tax Hike, Targeting Wealthy And Business To Steady Economy

The United Kingdom is ramping up taxes by an eye-popping £40 billion ($52 billion) as the government moves to stabilize finances, aiming much of the increase at high earners, foreign residents, and businesses.

Rachel Reeves, the UK's first female finance minister, presented the tax increases on Wednesday as part of the Labour Party’s first budget since a sweeping victory in the July general election.

The tax measures, projected to boost annual government revenue by £41.5 billion ($54 billion) by 2030, will lift the tax take to a record 38% of GDP, according to the Office for Budget Responsibility.

"Today, I am restoring stability to our public finances and rebuilding our public services," Reeves stated, criticizing the previous Conservative government for leaving the public sector underfunded. “The British people have inherited their failure. A black hole in the public finances. Public services on their knees. A decade of low economic growth. And the worst parliament for living standards in modern history.”

Describing the budget as a “responsible” blueprint, Reeves acknowledged the need for hard decisions. "I have had to take some very difficult decisions on tax," she added.

Taxing the Wealthy And Targeting Luxury

Before their election win, Labour had vowed to keep taxes low for working people, pledging not to raise income, sales, or payroll taxes. Now, however, the government is zeroing in on wealthier segments, announcing plans to tax inherited pensions and raising capital gains taxes, affecting profits from investment properties and financial assets.

“The change is a blow for investors,” noted Sarah Coles, head of personal finance at Hargreaves Lansdown. “It could make investing less attractive for newcomers, exacerbating a trend where fewer people in the UK invest compared to other countries.”

The government also pledged to abolish the non-domiciled tax regime, which allows wealthy foreign residents to avoid UK taxes. This change is expected to bring in £12.7 billion ($16.5 billion) over five years. Further targeting the super-rich, Reeves raised private jet duties by 50%, meaning a jetsetter flying to California now pays an additional £450 ($585) per passenger.

In another notable move, the budget proposes scrapping the 20% tax break on private school fees and removing property tax reliefs for private schools. With over 620,000 children enrolled in private education, this change could impact nearly 6% of UK students.

Boost For Business Investment And Economic Growth

The biggest revenue boost will come from a planned increase in employers’ National Insurance contributions, expected to eventually yield £25 billion ($33 billion) per year. Roger Barker, policy director at the Institute of Directors, warned that the National Insurance hike could stifle business confidence and limit worker opportunities, though small businesses will be exempt.

On a brighter note for the economy, Reeves revealed plans for substantial public investment, earmarking £100 billion ($130 billion) over the next five years for projects including a £70 billion ($91 billion) National Wealth Fund to back future-focused industries like battery manufacturing and green hydrogen. 

The Office for Budget Responsibility projects that the budget will spur UK economic output next year and in 2026, though the economy’s overall size may remain steady in the long term. After a shallow recession at the end of 2023, the UK economy is currently growing faster than expected, with the IMF recently raising its 2024 growth forecast to 1.1%, a 0.4-point increase over its July prediction.