The '2 and 20' Budget: More Tax Rises on Financial Assets to Come

I’m dubbing last week’s UK Budget the The “2 and 20” budget for two reasons:

Firstly, the increase of 2 per cent in the taxation of income from financial assets.

Secondly, the reduction from 30% to 20% in upfront tax relief on contributions to venture capital trusts.

In themselves, these measures raise limited revenue (the savings interest tax increase of 2% from April 2027 is estimated to raise £525m in 2028/9) and the dividend and savings tax increases might be seen as a left-over of the abandoned plan to increase income tax rates by 2%, but correspondingly reduce employee National Insurance contributions by 2% (which would have raised about £6bn per annum).

However, the justification for the measures in the Budget documents indicates this is just the start, as this extract from the Budget 2025 explanatory document demonstrates:

This framing signals a decisive shift in the balance of taxation. The ultimate goal is to at least match the tax rates on financial assets with income tax and national insurance combined (i.e. 28% for a basic rate tax paying employee).

The think-tank the Institute for Fiscal Studies Green Budget 2025 refers to the “tax penalty on employment” as the taxation of interest and dividends being at a lower marginal rate than income tax and national insurance contributions combined (28% for basic rate income tax payers in employment). Such views are clearly the foundation of government policies towards the taxation of financial assets.

The 2% increases in the 2025 Budget may well be followed up by a 2% increase in each of the next 4 Budgets to bring the tax rate on savings interest and property income to 28%. The basic dividend tax rate increase from 8.75% to 10.75% in the 2025 Budget is also likely to be the first of several such increases.

And who’s to say these increases stop there? Once the principle has been established of a higher rate of taxation on financial assets, memories will be stirred of ‘the investment income surcharge’ which applied an additional 15% surcharge on what was termed ‘unearned income’ until its abolition in 1984.

What such measures overlook is that for savers and investors like myself, the capital generating investment income was very hard-earned, by myself, and my ancestors, and derives from that saved after income had already been taxed.

It is somewhat galling to be taxed again, potentially in the future at higher rates than those in employment, with the proceeds used to support many who have not prudently provided for their own and their families’ futures.

It’s almost as if the government wishes to deter private saving and self-reliance, and instead extend the numbers dependent on the state.