UK (Parliament Politics Magazine) – Former Bank of England governor Lord King says Chancellor Rachel Reeves lacks a coherent UK tax strategy and urges delaying tax rises for careful planning.
As reported by The Telegraph, Lord King criticized Rachel Reeves for having no clear plan for UK taxes.
What did Lord King say about Rachel Reeves’ UK tax plans?
Ex-BoE chief in 2008, Lord King, urged Chancellor Rachel Reeves to delay tax rises, warning against hasty decisions.
He condemned the Treasury’s reliance on the Office for Budget Responsibility, claiming ministers are pressured to act on a single figure without proper planning.
The crossbench peer’s warning comes amid reports that the Chancellor is planning a new mansion tax in the upcoming Budget.
Lord King warned Ms Reeves against cutting savings as the tax-free ISA allowance is set to be reduced.
When asked about the Chancellor’s plan, he responded,
“No, I can’t, and that’s what worries me. What I would advise her to do is 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.”
The former central bank governor stated,
“And that doesn’t seem to happen. What happens is, the OBR produces just before the Budget a number, one number, and then they look round for, you know what idea is almost written on the back of a fag packet about how you can raise an extra few billion here or few billion there.”
He added,
“That is not a coherent tax strategy, and you could do a great deal by thinking it through first.”
Mr King condemned reliance on one OBR figure, calling it “madness,” adding,
“The OBR comes up with one number which tells you by how much you have to raise taxes or cut spending.”
He stated,
“The only way to describe that is madness. This is based on an assessment of whether the ratio of our national debt to national income is going to be falling four years from now.”
Lord King said,
“Well, we have no idea. The idea that, ‘Oh, if only you do, you know, £8.3bn this year, that’s it’, is nonsense… You can’t determine public spending sensibly by having a change every six months when the OBR reports, saying you better cut spending or raise taxes by this one number.”
The ex-Bank of England chief warned it could take years for Ms Reeves to improve Britain’s economy.
He stated,
“I think the one piece of advice I would give is she should start the Budget with a very clear and honest statement about the state of the nation, state of the economy. Don’t blame people for what’s happened in the past, it may get cheers on the floor of the House of the Commons, but what people want to hear is what is the actual state of the nation.”
Lord King said,
“And then not to pretend that there is one set of measures you can announce and within a few weeks or months, it all comes right. It doesn’t. It takes a long time. Any measure to improve the economic performance of this country would take years before it really comes through.”
He urged the chancellor not to tax or penalise household savings.
When questioned on whether the ISA allowance should remain unchanged, Lord King responded,
“Well, there are technical issues about whether you want to give the same tax incentives to just cash investments or equity investments. Leave that to one side. The principle has to be to encourage savings.”
What is the impact of the proposed mansion tax on UK homeowners?
The government’s mansion tax plan could see homeowners with properties over £2 million paying 1% on the value above that threshold.
Reports suggest that owners of a £3 million property could face an annual charge of £10,000. The proposed tax plans would also target homeowners with estates worth tens of millions.
The OBR releases forecasts aligned with the Budget and smaller fiscal events, such as the Spring Statement. It faces criticism for its strong influence on government policy, with ministers adjusting plans to comply with the Chancellor’s fiscal rules.
What did experts say about the impact of the mansion tax on homeowners?
Lucian Cook, the head of residential research at estate agent Savills, stated,
“There’s a big difference between someone in a £2m house without a mortgage and someone with a sizeable mortgage. So it doesn’t necessarily capture net wealth at all.”
Neal Hudson, the founder of housing market data firm Residential Analysts, said,
“There’s a danger this will have some fairly negative impacts. The top end of the market has been stagnating for the last decade already as it’s been hit by higher rates of stamp duty.”
What did Alison McGovern say about reviewing local government taxes?
Alison McGovern, the local government minister, said,
“The Government remains committed to keeping all taxes and elements of the local government finance system under review.”
She added,
“The Government will continue to monitor the effectiveness of the system and consider options for reform where there is clear evidence that change would deliver better outcomes for residents and councils alike.”
What did Labour Together say about using mansion taxes to fund transport?
Labour Together, set up by Sir Keir Starmer’s chief of staff, Morgan McSweeney, has recommended imposing mansion taxes on high-value properties in wealthy areas.
The report also recommended French-style measures that would allow local authorities to levy an employment tax surcharge to fund infrastructure.
It said,
“Richer areas like London should have the powers and incentives to fund their own infrastructure, freeing up central government funding for the parts of the country that can’t yet stand on their own two feet.”
The report added,
“London should have the toolkit that a city like Paris has to tax the businesses and households that will benefit from new infrastructure.”
What did Paul Johnson say about Rachel Reeves’s mansion tax plans?
Paul Johnson, former director of the Institute for Fiscal Studies, warned that Rachel Reeves’s plan for a “mansion tax” on high-value properties could cost the Treasury money.
He expressed surprise at reports that the Treasury is considering a mansion tax, warning it could “block up the entire housing market.”
What did the Treasury say about tax policy and protecting working people?
A Treasury spokesman stated,
“The best way to strengthen public finances is by growing the economy, which is our focus. Changes to tax-and-spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn.”
They added,
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance, or VAT.”
What is a mansion tax, and how does it work?
A mansion tax is a type of real estate transfer tax applied as a one-time fee during the closing of a property sale, triggered when the purchase price exceeds a specific value threshold.
The primary purpose is to generate revenue for public funds. This income is often directed toward specific initiatives such as affordable housing programs, homelessness prevention, and public transit systems.
This tax exists in several U.S. states and localities, including New York, New Jersey, Connecticut, Hawaii, Vermont, Washington, D.C., and Washington state. Local versions also apply in cities like Los Angeles.
