Rachel Reeves Budget Plans Under Fire as Lord King Warns of Tax Policy Chaos

The Chancellor Rachel Reeves is facing mounting criticism over her approach to the UK’s tax system, with Lord King, former Governor of the Bank of England, warning that her plans lack coherence and strategic direction. Lord King, who steered the nation through the 2008 financial crisis, has suggested the Treasury should postpone any tax rises for a year, cautioning against policy changes crafted hastily to meet fiscal targets set by the Office for Budget Responsibility (OBR).

Speaking to the Sunday With Trevor Phillips show, Lord King expressed concern about the reported introduction of a new mansion tax in the upcoming Budget. The proposal would see owners of properties valued at £2m and above paying a 1 per cent annual levy on the value beyond this threshold, equating to a recurring bill of £10,000 for a £3m property. The changes are expected to hit owners of high-value homes and second properties particularly hard. Lord King argued that devising tax strategy in response to OBR forecasts—centred on a single number that governs public finance decisions—was “madness”, as it forced ministers into rushed and short-term thinking.

At present, the OBR issues forecasts twice yearly, which then exert a significant influence over Treasury policy. Lord King asserted that this system leads to frequent shifts in spending and taxation, undermining the ability to develop a consistent and effective fiscal policy. He instead urged the Chancellor to convene a panel of experts to conduct a thorough year-long review of the tax system, examining not only property taxes but also savings, investments, and wealth more broadly.

With reports suggesting Ms Reeves may also halve the tax-free cash Isa allowance in her next Budget, Lord King raised concerns that such measures risk discouraging households from saving. He called on the Chancellor to avoid discriminating against savings accounts, emphasising the importance of encouraging prudent financial behaviour among the public. The discussion over whether Isas should favour cash or equities was characterised as a technical issue, but Lord King insisted the guiding principle should be to support saving in all its forms.

Lord King also issued a broader warning that any improvement in Britain’s economic performance would require patience, as meaningful gains could take years to materialise. He counselled Ms Reeves to open her Budget with a candid assessment of the state of the nation’s finances, steering clear of blame games and focusing on transparency to build trust with the public.

With the Budget drawing close, debates over tax policy, spending cuts, and how to boost economic growth remain at the forefront of economic and political discourse. Savers and homeowners alike are bracing for the impact of the forthcoming Budget, as the Chancellor navigates competing demands and warnings from both advisers and the markets.