‘Rachel Reeves should not be deterred from Budget wealth taxes’

Another Budget is coming, and the Chancellor is eyeing up taxes on wealth. A tax on high value properties. National insurance on rent. With a net 47% of the public wanting the tax burden shifted towards wealth rather than work, that’s the right move.

But the tractors rumbling down Whitehall after last year’s inheritance tax reforms are now etched into the psyche of Government. Can it risk another wealth tax drama? 

The Chancellor should not be spooked. New Demos research argues that the inheritance tax backlash was not a verdict on the principle of taxing wealth, but rather a case study in how not to communicate such reforms. Lessons can now be learnt.

With a stronger narrative and clearer communication, taxes on wealth would not incite such furious backlash. In fact our evidence shows they could start a desperately-needed journey towards rebuilding public trust.

The narrative was weak

The government’s story about why it needed to raise taxes last year did not cut it. “Filling a fiscal black hole” may solve an accounting problem, but it’s not a compelling story for the public. Critically, it fails to answer the public’s most basic question: what’s in it for me and my community?

Perhaps, though, the government rationalised the inheritance tax reforms on their own terms? Beyond just raising revenue, maybe the changes improved the tax system?

In applying inheritance tax to pensions, the government made that positive case. In her Budget speech – a proxy for the government’s narrative – the Chancellor explained how the pension reform would “close the loophole created by the previous government“. 

This speaks to the public’s deep desire for tax fairness. When engaging with the public about inheritance tax at Demos, we heard complaints about people with “accountants and tax advisors to make sure they don’t pay it”.

Nationally-representative surveys reveal how widespread that sentiment is – and the pension reform was framed in those terms.

But when we instead look to inheritance tax on farms, the explanation was timid. The Chancellor retreated to talking about raising revenue and how few farms would be affected, rather than why the reform itself was just.

Months later, the Prime Minister doubled down. When asked whether the reform targeted “the super-rich sheltering wealth”, he said “it was not aimed at a particular group” and that “what the very wealthy do with their money, within the rules, is a matter for them”. 

This neglect of principle undermined the change. The public were not given a positive reason to support it. In its place, accusations of government insensitivity festered.

They lost the data war

Numbers matter. But the weeks after the Budget were a wild-west for data (if such a thing exists). What would the typical tax threshold be? How many farms had the means to pay the bills? 

Most prominently, while the government insisted that around 500 farming estates would be affected by the changes each year, others said it would be 70,000 across a lifetime.

The National Farmers’ Union (NFU) claimed the government had failed to account for the time-lag in its data, or the interaction with business tax relief. Politicians and the media struggled to wrap their heads around the debate. Confusion spread.

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A particularly irksome issue was the conflation of farms with estates. One estate may own many farms, and one farm may be owned by many estates. That is very important. Yet, the media debate – see The Telegraph, Sky News, and Farmers Weekly – conflated the two, muddying the waters. 

As the showdown continued, one character sat quietly: the Office for Budget Responsibility (OBR). The government’s ‘500’ figure was based on independent OBR analysis. It had (critically!) accounted for the time-lag in the data, the interaction with business tax relief, and spoke strictly of estates, not farms. But this rarely featured in the debate. 

Why? Partly because the government failed to put it centre-stage. The OBR methodology was not published, and when asked about the forecast, Starmer reverted to talking about the number of agricultural relief claimants in previous years rather than the OBR analysis. Once again, this opened the government up to the NFU’s objections. 

The lack of clarity on data left a vacuum for confusion to fill. And so it did.

This Budget requires courage, not caution

The inheritance tax reforms were largely sound. They ensure the very wealthy pay a fair share and will mainly impact investors, not family farms.

Recent analysis shows that 80% of the tax will come from estates over £5 million. Just 1% will come from estates under £2 million. And just 15% will come from estates likely to be ‘small family farms’. 

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That’s not to say the reforms couldn’t be improved. Better engagement with the public about the values underlying the reforms would have helped guide that. But critically, the story and communication undermined the reforms from the start. 

This Budget, the government must learn the lessons. Be bolder. Own the principle. Command the data. 

Demos research shows how a more courageous stance could take us towards a more optimistic politics. Our survey revealed how plugging the fiscal hole through taxes on wealth and gambling could actually raise public confidence in the government.

But that only happens if the government makes the case on fairness.

It’s time to tax wealth wisely, and to do so without apology.

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