Rachel Reeves urged by think tank to put one-off wealth tax in Budget

A think tank has said that a windfall one-off tax on existing wealth would be better than an annual levy.

An “unexpected and credibly one-off assessment” of existing wealth could be an “economically efficient way to raise revenue” and would avoid changing people’s future behaviour, the Institute for Fiscal Studies said.

The Government is under pressure to balance the books ahead of November's autumn statement amid warnings of a black hole estimated to be as much as £50 billion in the public finances.

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But in a wide-ranging report, the Institute for Fiscal Studies urged the Chancellor to resist "simply hiking rates" without making other changes to an "unfair" and "inefficient" tax system.

It also warned that restricting income tax relief on pension contributions "should be avoided" and repeated its cautions against an annual wealth tax, which it says would penalise savers, or increasing stamp duty.

Among the options available to the Chancellor as set out by the IFS are:

• Ending capital gains tax relief on death, which allows for assets to be inherited without paying CGT on the increase in value over the deceased person's lifetime, to raise £2.3 billion in 2029-30.
• Impose a "one-off" tax on wealth, while avoiding what it described as "serious drawbacks" of a recurring wealth tax.
• Double council tax rates on the top two property bands to raise £4.4 billion. Any extra cash from changes to council tax would flow to local authorities rather than central government, but Ms Reeves could in turn reduce the grants paid to local authorities if she wanted to bolster the Treasury's coffers, the IFS said.
• Reforming death duties to abolish the additional £175,000 tax-free allowance that can be used when passing on a primary residence to a direct descendant, raising around £6 billion.
• Increasing the bank levy and the bank surcharge, which taken together will already raise a total of £2.4 billion in 2025-26. A one percentage point increase in the bank surcharge would raise around £0.4 billion in 2029-30.
• Tackling non-compliance to narrow a widening corporation tax gap between the amount of tax the Government thinks should be paid and how much it actually collects.

"It would be possible for the Chancellor to raise tens of billions of pounds a year more in revenue without breaking the letter of Labour's manifesto promise not to increase the 'big three' taxes.

"But doing so would not be straightforward," the IFS said.

On the other hand, extending the freeze on personal tax thresholds including national insurance contributions (NICs) further would be expected to raise around £10.4 billion a year from 2029-30.

But this would amount to a breach of Labour's manifesto pledge not to increase taxes for "working people" which includes income tax, national insurance and VAT, the IFS said.

The think tank also called for a wider overhaul of the council tax system, arguing that banding is still based on the value of properties as of 1991 and must be updated to end a "regressive" and "hard to justify" rate structure.

It said a "good end goal" would be to replace stamp duty on housing and council tax with a "new recurrent property tax" proportionate to updated values.

"Changing rates and thresholds is all very well, but unless the Chancellor is willing to pursue genuine reform it will be taxpayers that shoulder the cost of her neglect," the report, which forms a chapter in the IFS' wider budget assessment for 2025, says.

Economists have warned Ms Reeves is set for a £41 billion shortfall on her self-imposed rule of balancing day-to-day spending with tax receipts in 2029-30 ahead of her Budget next month.

Isaac Delestre, a senior research economist at the think tank and an author of the chapter, said Ms Reeves would have "fallen short" if she limits her ambition to a dash for 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 last thing we need in November is directionless tinkering and half-baked fixes. There is an opportunity here.

"The Chancellor should use this Budget to take real steps down the road towards a more rational tax system that is better geared to promoting the prosperity and well-being of taxpayers."