The UK government is facing mounting pressure to explain how it will fund its recent U-turns on welfare and energy support, especially with the economy wobbling and the threat of new “wealth taxes” sparking fresh concern among middle and upper-income earners.
While ministers have promised to protect “modest earners,” the definition of who qualifies remains up in the air.
Treasury Minister Ducks Big Questions on Tax Plans
Chief Secretary to the Treasury Darren Jones made the media rounds this morning, but he wasn’t giving away much.
He repeatedly dodged questions on what constitutes a “modest income” and refused to provide any detail on who exactly would shoulder the burden of potential wealth tax hikes.
Pressed on how the government would pay for restoring the winter fuel allowance and scrapping welfare curbs, Jones said only that everything would be “fully funded” in the next Budget.
Analysts, however, suggest Chancellor Rachel Reeves may be staring down a £30 billion black hole—and it’s not clear where the money will come from.
Bailey Hints at Rate Cuts as Businesses Slash Jobs
Bank of England Governor Andrew Bailey had his own warning for the public, telling The Times that businesses are already “adjusting employment” due to steep national insurance hikes introduced earlier this year.
Translation: companies are quietly cutting jobs, and some workers are taking home smaller pay rises than they might have otherwise.
Bailey said the economy is still underperforming, with enough “slack” to help ease inflation without further shocks.
Although interest rates have held steady at 4.25%, the governor strongly hinted they could finally drop at the next review on August 7.
“I really do believe the path is downward,” Bailey said.
“But we continue to say ‘gradual and careful’ because… well, some people still ask me why we’d even consider cutting while inflation’s above target.”
Wealth Tax Speculation Continues to Swirl
Transport Secretary Heidi Alexander stirred the pot even more by refusing to rule out tax hikes this autumn.
She said Labour’s guiding principle would be “fairness” and ensuring those on modest incomes were protected.
Again, no definition of what that income range actually includes.
That vague language has only added fuel to growing rumours that a wealth tax might be coming—a long-standing wish among left-leaning Labour MPs.
Potential Options on the Table for Taxing the Rich
So, what could a so-called “wealth tax” actually look like? Several options are currently being discussed, and each comes with its own set of complications:
A Tax on Assets
Former Labour leader Lord Kinnock recently floated the idea of a 2% tax on personal assets worth more than £10 million.
Theoretically, it could raise up to £11 billion annually—but defining and assessing those assets would be tricky, and such a move might drive wealthy individuals and families to relocate outside the UK.
Hike in Capital Gains Tax
Capital gains tax (CGT) is currently lower than income tax, with higher earners paying 24% on profits from things like shares or second homes.
Aligning CGT with income tax—where the top rate is 40%—could raise significant revenue.
But this would also be deeply unpopular with investors and landlords.
Raising the Top Rate of Income Tax
There’s also the option of bringing back Labour’s old 50p top tax rate, which was introduced in 2010 but cut to 45p three years later.
However, experts at the Institute for Fiscal Studies (IFS) say increasing this rate would likely bring in only marginal gains due to existing tax cliffs and income tapering at higher thresholds.
Government Tries to Keep Focus on Growth and Jobs
In response to the criticism, Darren Jones said the government remains focused on helping businesses grow.
He pointed to plans for investment in the skills system, energy cost reductions for businesses, and international trade deals with the EU, India, and the US.
“Yes, businesses are making adjustments,” Jones said, referring to the impact of the national insurance hike.
“But we’ve also seen hundreds of thousands of new jobs created across the country. It’s part of the normal business cycle.”
Still, with both uncertainty around taxation and rising economic anxiety, many are left wondering what the Budget will really deliver—and whether “modest earners” are as safe as promised.