Rachel Reeves’ former boss has suggested the government does not have a “coherent” tax strategy, amid reports the chancellor is considering a mansion tax in next month’s Budget.
Mervyn King, former governor of the Bank of England, told Sky News that problems within the system cannot be solved by “just adding another wealth tax to it”.
It has been reported that the chancellor is considering a tax on high-value properties in next month’s Budget.
Lord King ran the Bank of England – where Reeves spent an early part of her career – for 10 years from 2003 to 2013.
Speaking to Sky News on Sunday, he said that there is “plenty of scope for reforming the tax system”.
Pointing to the reports around a mansion tax, he went on: “Property taxes are [an] interaction between stamp duty, council tax, capital gains tax, inheritance tax. You don't solve that problem by just adding another wealth tax to it.”
He said that he would advise the chancellor to “set up a group of people who, in 12 months, look deeply at all aspects of the tax treatment – not just on property, but all kinds of other sorts of savings and wealth – to come up with a coherent view as to what it should look like.
“And that doesn’t seem to happen. What happens is the [Office for Budget Responsibility] produces just before the Budget a number ... and then they look round for what idea is almost written on the back of a fact packet about how you can raise an extra few billion here or few billion there.
“That is not a coherent tax strategy, and you could do a great deal by thinking it through first.”
The mansion tax proposal could mean owners of properties worth at least £2m facing an annual charge of 1 per cent of the amount by which it exceeds that value.
It is thought that the tax would be backed by left-leaning Labour MPs, but there are also concerns within the cabinet about the impact the policy could have on aspiration.
It is understood that a number of ministerial heavy-hitters, including deputy prime minister David Lammy and home secretary Shabana Mahmood, are among those opposed to such taxes.
The chancellor is due to deliver this year’s autumn Budget at the end of November, as she looks to fill the holes in the public finances.
She is facing the prospect of being forced to use tax hikes or spending cuts to meet her commitments on covering day-to-day spending with tax receipts, rather than extra borrowing.
The Labour manifesto also committed to not increasing income tax, VAT, or employee contributions on national insurance.
The Independent reported over the weekend that the chancellor is coming under pressure for a tax raid on the highest earners.
Ministerial sources have said that changes to the top rate of income tax have been discussed within government, as part of talks on how the budget black hole could be filled.
One source said: “The 45p rate is definitely in play. It would be a popular move within the party.”
The 45p rate is applied at a rate of 45 per cent on income above £125,140, and is expected to be paid by more than 1.2 million people by the end of the year.
This week, Reeves is leading a UK delegation to Saudi Arabia to try to make progress on a trade deal with the Gulf Cooperation Council.
The first chancellor to visit the Gulf in six years, she will attend the Future Investment Initiative (FII) and meet senior Saudi royals, US administration figures and global business chiefs, with a series of announcements on investments expected in the coming days.
