Reeves’s tax raids are no longer working

Matthew LynnSat, May 9, 2026 at 6:00 AM UTC

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Rachel Reeves has forgotten that raising taxes changes the way people and businesses behave - Ian Forsyth/Getty Images

The tax on “mansions” is racking up bills running to hundreds of millions a year before it has even been introduced.

The new pay-per-mile charge for electric vehicles (EVs) may cost the Treasury £4bn.

And putting VAT on private school fees, far from raising money to improve education, is turning into a drain on the public finances.

In the last couple of weeks, it has become dramatically clear that Labour’s endless tax raids are costing more money than they will raise. Surely, the moment has arrived to sweep them all away – before they do any more damage.

The Government doesn’t have enough money to fund our Armed Forces properly – or even to fix the potholes. But when it comes to fighting the class war, resources are unlimited.

Let’s start with the “mansion tax”, the new levy that will be imposed on a sliding scale on homes worth more than £2m.

In response to a Freedom of Information request, Treasury officials admitted this week that there would be a £230m fall in stamp duty and inheritance tax revenues as values drop to around the threshold at which the tax is levied.

Identifying and valuing all the homes that will have to pay the new levy is likely to cost another £150m.

Add the two figures together, and the mansion tax will end up costing the Government £380m before it raises any cash at all.

Or take the new tax on EVs, designed to replace all the revenue lost from fuel duty as we switch to battery-powered cars. In a letter to the Treasury this week, a coalition of EV drivers, renewables companies and charging businesses warned that the new tax could cost the Government up to £4.8bn in lost revenue.

Why? Because it will trigger a slump in the sales of new EVs and stop people from replacing older petrol and diesel cars.

All the VAT that would have been collected will be lost. In New Zealand, a similar charge led to a 50pc fall in sales, and in Iceland, a 75pc drop. There is no reason to think it will be any different here.

It is a similar story with VAT on school fees. According to a report last month on the impact in Scotland of putting VAT on school fees, the change will cost the Government £16m a year once all the children who will have to be educated in the state sector instead are taken into account.

That will rise to £181m in the 2030s. If we extrapolate that across the whole of Britain, the final figure will be a lot higher.

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Add up those three taxes alone, and it is already painfully clear that Rachel Reeves, the Chancellor, will be facing yet another “black hole” in the nation’s finances very soon. Three of her flagship tax policies, far from raising any extra money, will end up costing more money instead.

There may well be more on the way. It is already starting to look as if the closing of the non-dom loophole will be a drain on overall tax revenues as all the wealthy foreigners leave the UK.

The packaging tax may be a net drain if it closes down shops and the rise in National Insurance on employers will raise a lot less than forecast as businesses stop hiring. If enough jobs are lost, this may well result in a net loss as well.

The list goes on and on. We are now in the ridiculous position where Reeves imposes extra taxes and ends up with less money as a result.

In reality, there are three big problems. To start with, both the Chancellor and the incompetent Treasury officials who advise her appear to have completely forgotten that taxes change the way people and businesses behave.

If you put an extra tax on more expensive homes, people will try to stay under the threshold if they can. If you slap a new tax on EVs, drivers will stick with the old diesel car for a few more years, and if the cost of private education goes up, then more children will have to be educated by the state.

The cost of a product matters, and the tax levied will be taken into account before anyone buys it or not. The higher the tax, the lower the demand and the less revenue it brings in.

Next, at the margin, a few companies (or schools) will disappear because the extra tax will bankrupt them and all the corporate and payroll taxes they would have paid will disappear as well.

Finally, it clutters up the system with charges and levies, none of which bring in any revenue, and all of which cost money to administer.

Take a fairly essential product such as a home. There are five bands of stamp duty to pay depending on a home’s value, eight bands of council tax and soon several bands of mansion tax as well, with additional levies if you are a foreigner.

Not to mention if it happens to be a second home or not. The whole system becomes so complex that people just give up.

The blunt truth is this. Labour’s tax raids have now reached the point where they are costing the country more than they can ever possibly raise. It would be far better to sweep them all away.

It would raise more money and make it far simpler – and cheaper – to follow the rules. Sadly, there is not much chance of it from this Government.

It is addicted to imposing more and more fiddly taxes, especially if they can be sold as attacking “the rich”.

But there is now a huge opportunity for a genuinely reforming chancellor to sweep them all away. It would bring in more cash and make the whole system far easier to operate.

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Source: “AOL Money”