02/05/2026 by Tony Redondo
In 1975, Britain’s tax system stood as one of the most punishing in the developed world. A monument to the belief that wealth creation could be taxed without limit and enterprise penalised without consequence. Under Denis Healey, Labour’s Chancellor of the Exchequer, income tax rates escalated rapidly from a basic rate of 35% through eight higher-rate bands, culminating in a top rate of 83% on earned income above £20,000 (roughly £160,000–£190,000 in today’s money). For those who earned investment income, through interest, dividends, or rent an additional surcharge pushed the effective tax rate to 98%. Capital Gains Tax stood at a flat 30%, further discouraging the risk-taking and long-term thinking that drives productive economies.
The replacement of Estate Duty with Capital Transfer Tax in March 1975 extended the state’s reach still further, taxing not just wealth passed on at death, but gifts made during a person’s lifetime. Graduated rates reached up to 75% on the largest estates, ensuring that multigenerational wealth accumulation was, for most, impossible. VAT, introduced only in 1973, had by 1975 spawned a “luxury tax” rate of 25% on goods including petrol, electrical appliances, and televisions.
The results?
By 1976, Britain was the sick man of Europe. Stagflation had taken hold, inflation peaked at nearly 25% in 1975 and remained above 15% the following year, and the pound had collapsed from $2.30 to under $1.60. The public sector borrowing requirement stood at roughly 9% of GDP.
The denouement was humiliating. In September 1976, Chancellor Healey was famously turned back from the airport, enroute to a meeting in the Philippines to confront a currency in freefall. Britain was forced to go cap in hand to the IMF (International Monetary Fund), borrowing $3.9 billion (approximately $22 billion in today’s money) in what was then the largest loan the IMF had ever granted. The conditions were severe. £2.5 billion in spending cuts and strict monetary targets to bring inflation to heel. The enterprise economy had been strangled, and the bill had come due.
The spending cuts and the uneasy Social Contract with the unions could not prevent the inevitable. The Winter of Discontent (1978–79) laid bare the bankruptcy of the preceding years, and in 1979 the country turned to Margaret Thatcher.
Fifty years on from that nadir, the lessons appear to have been forgotten. Two years into the Starmer government, the first Labour administration in 15 years, the OECD (Organisation for Economic Co-operation and Development) reports that the UK already raises more revenue from wealth and wealth-related taxes as a share of GDP than any other OECD economy, outstripping even Spain, Norway, and Switzerland, the only three European countries that retain a formal wealth tax.
Today’s Britain is not a low-tax haven for the wealthy. It is, by this measure, the most aggressive wealth-taxing economy in the developed world. And yet the appetite for more shows no sign of abating.
The historical record on wealth taxes could hardly be clearer. Across Western Europe they have been tried, and they have failed, abandoned even by left-wing governments when confronted with the reality of high administrative costs, disappointing revenues, and the flight of investment and entrepreneurial capital. Meanwhile, wealth inequality in the UK is lower today than at almost any point in the 20th century with the top 1% holding around 22% of total wealth, below the EU average of 25% and far below the US figure of over 35%. The problem wealth taxes purport to solve is, in relative terms, already less acute here than almost anywhere else.
The IFS’s authoritative Deaton Review, the product of six years of rigorous research, is unambiguous. An annual wealth levy would generate “complexity, distortions and unfairness”, with serious consequences across the policy landscape. Before reaching for the blunt instrument of wealth taxation, politicians would do well to define precisely what problem they are trying to solve and to ask honestly whether the cure might be worse than the disease.
Chancellor Rachel Reeves is said to be flirting with the idea of introducing rent controls. Swedish economist Assar Lindbeck, no ideological partisan famously observed that rent control is “the most efficient technique for destroying a city apart from bombing.” The British Property Federation has been equally direct, warning that there is “no surer way for the Government to kill off its ambitions to deliver the homes we desperately need.” The National Residential Landlords Association has called it “a disaster for landlord and investor confidence and, consequently, the supply of homes in England.”
The lesson of 1976 and of every experiment in punitive taxation and market suppression since is that wealth is not a static pool to be redistributed at will. It is created, and it can be destroyed. Policy that forgets this does not merely fail on its own terms; it impoverishes the very people it claims to help.
Currency Exchange Rates Update
April was a good month for the Pound Sterling but buckle up for May is the warning from analysts.
The British pound strengthened through April, by over 1.1% against the Euro and over 2.9% against the US Dollar helped by a significant number of UK-listed companies that earn overseas revenue and repatriate it to pay Pound Sterling denominated dividends at this time of the year. Risk sentiment also improved as the worst of the Middle East conflict passed by.
https://www.saga.co.uk/money-news/should-you-move-somewhere-cheaper-in-retirement
However, this month may see the Pound come under renewed pressure. Politically, PM Starmer is already under severe pressure from the fallout of the Mandelson affair and now comes the 7 May elections throughout the UK. Starmer’s Labour Party is expected to lose heavily in Scotland, Wales and across England’s councils.
James Smith, Developed Markets Economist at ING Bank says, “The risk of a leadership change in Downing Street is growing. The financial markets are wary that a new prime minister and, by extension, chancellor might mean more borrowing and looser fiscal rules”. Former Deputy Prime Minister Angela Rayner is considered the favourite to replace Starmer in the event he is ousted. She represents a more socialist Labour politics, which will be potentially detrimental for the country’s finances.
On Thursday, the BoE (Bank of England) kept the Bank’s base rate on hold at 3.75% in an 8-1 vote with known hawk Chief Economist Huw Pill the only dissenter voting for a 25 basis-point increase.
The BOE said it expected war in the Middle East to continue to push energy and fuel costs higher, noting that its ability to mitigate these pressures with monetary policy was limited. The BoE stands ready to respond with monetary policy if necessary but David Rees, head of global economics at Schroders said the bar for rate hikes “remains high.”
Rees said, “The risk of persistently higher inflation, along with speculation about political change after the local elections, has lifted gilt yields to near 20-year high. With some slack emerging in the labour market and growth likely to weaken if disruption drags on, we doubt the Bank will tighten unless economic activity stays strong enough to absorb it”.
The ECB (European Central Bank) also held rates unchanged on Thursday but Francesco Pesole, FX Strategist at ING, expects the ECB to raise rates by approximately 80 basis points during 2026 the ECB’s starting point is 150bp lower and policymakers in Frankfurt have a reputation for being more hawkish than their BoE counterparts. That could deflate the Pound.
The US Federal Reserve also kept US rates unchanged last week, but the Federal Open Market Committee vote included four dissents, making it the most divided Federal Reserve decision since the 1992. Three voting members argued against signalling future rate cuts, citing inflation risks and resilient economic conditions. In contrast, Trump appointed board member Stephen Miran dissented in favour of an immediate 25 basis point rate cut, arguing policy had become unnecessarily restrictive. The tone of the outcome was interpreted as mildly supportive of the US dollar, given the resistance among several policymakers to easing policy too quickly.
In the coming week, the key economic data releases and significant events include:
Monday EU PMI Manufacturing
Tuesday Australia RBA Interest Rate Decision
US PMI Non-Manufacturing Index & New Home Sales
Wednesday EU PMI Composite
Thursday UK English local elections; Scottish and Welsh Parliament
Friday UK Halifax Housing Index
Germany – Industrial Production
US NFP Employment Data & Consumer Sentiment Survey
What’s in the news?
UK
New regulations will require banks and payment service providers to give customers at least 90 days’ notice before closing accounts or terminating services. This change extends the current two-month notice period. The rules aim to protect customers, particularly small businesses, from sudden account closures. Banks must also provide clear written explanations for account terminations, allowing customers to challenge decisions through the Financial Ombudsman Service.
Petrol retailers have been vindicated of “price gouging”, pouring cold water on the government’s accusations of profiteering from the war in Iran. The CMA (Competition and Markets Authority) found that higher fuel prices in the UK were caused by the rising cost of oil, rather than by retailers expanding their margins to profit from the disruption caused by the Iran war. A bitter row erupted between forecourt operators and the government after ministers including Chancellor Rachel Reeves and Energy Secretary Ed Miliband said they would “not tolerate” so-called “price gouging”.
Good news
US investment banking giant JP Morgan is relocating a number of roles at its Paris hub to London in a rethink of policies introduced in the wake of Brexit. Along with EU rules, JP Morgan’s decision also stems from role changes and personal tax considerations according to Bloomberg. The influx of roles to the UK comes amid JP Morgan’s plans for a 3m square feet tower in Canary Wharf. The project is expected to inject as much as £10bn into the economy and create an additional 7,800 jobs across construction and other local industries. Once finished it will house up to 12,000 and serve as the bank’s main headquarters in UK and is biggest presence across Europe, the Middle East and Africa. But JP Morgan continue to warn the skyscraper would only go ahead should the government maintain a favourable tax environment.
The latest S&P Global PMI (Purchasing Managers Index) from put the manufacturing sector shows a reading of 53.7, its best since May 2022. This marked its sixth consecutive month above the neutral 50.0 mark, which indicates if a sector is growing. In another major boost to manufacturers, staffing levels increased for the first time in 18 months. Production was boosted by the scaling up of output volumes from new order intakes and efforts to clear backlogs of work. Meanwhile, output growth increased across the consumer, intermediate and investment goods categories.
Not so good news
UK borrowing costs are at their highest level since the GFC (Great Financial Crash) of 2008 as the government’s debt interest bill is forecast to hit £111.2bn for the current financial year, equivalent to 8.3% of public spending. The yield on the benchmark 10-year gilts, as UK bonds are known, rose to a peak of 5.092% on Wednesday and 5.742% on the 30-year gilts on Thursday. These yields have now surpassed the peaks seen during the “Mini-Budget” crisis of September 2022 (where the 10-year briefly spiked toward 4.5%). Unlike that sudden “shock,” the current rise has been a steadier climb driven by structural inflation concerns.
The NIESR (National Institute of Economic and Social Research), the UK’s oldest economics think tank has said the UK economy will suffer a hit to growth amounting to at least 0.5% this year due to the Iran war and revised down its growth forecasts for the UK economy to 0.9% this year, compared to a previous forecast of 1.4%. The UK economy will then barely grow in 2027, with GDP inching up by just 1% and also said that with inflation set to race past the 4% mark by early 2027, the BoE could opt to raise interest rates as soon as at their 30 July policy meeting as part of an effort to dampen price pressures. It said its “relatively benign” central scenario, where the conflict in the Middle East is resolved within the coming days, would see the UK economy narrowly avoid a recession.
The ONS (Office for National Statistics) reported a slump in new business formations in the first quarter of 2026 with only 78,655 companies established, an 8% drop from 2025. The ONS also reported that 83,200 companies closed during the same period.
Analysis by Accountants UHY Hacker Young reveals that national insurance bills paid by employers jumped by £28bn or 24% last year after Chancellor Rachel Reeves raised the tax rate in her first Budget in 2024. “It’s now fairly widely recognised that the level of tax in the UK has got too high,” said Phil Kinzett-Evans, a partner at the firm. “Businesses need to see a sensible economic plan that sees a reduction in the business tax burden.”
Consumer intelligence specialist NIQ reported that Britain is losing 3.4 pubs and restaurants daily, with over 350 closures in the first quarter of the year. Karl Chessell, a director at NIQ, stated, “Soaring costs have taken a heavy toll on hospitality.”
Leading specialist professional services firm BTG reported that the ongoing conflict in the Middle East is exacerbating financial distress among UK businesses, particularly in the hospitality sector. According to the BTG, 62,193 firms were in critical financial distress in Q1, a 36.9% increase from last year. The number of businesses in ‘significant’ financial distress rose by 9.6% year-on-year to 634,867. Julie Palmer, managing partner at BTG, said, “Inevitably we expect to see an increasing number of zombie businesses tipped over the edge this year.” Rising energy prices and tax hikes have further strained consumer confidence, especially in sectors reliant on discretionary spending.
Whitbread, the UK’s largest hotelier is axing thousands of jobs amid the Chancellor’s tax hikes by exiting its remaining branded restaurant operations in a sweeping restructuring that will place around 3,800 jobs across the UK and Ireland at risk, as the hospitality group doubles down on its core hotel business. Whitbread owns Premier Inn and confirmed plans to convert all 197 of its remaining branded restaurants into hotel-based food-and-drink services as part of a wider reset of its five-year strategy. The move marks one of the most significant shifts in Whitbread’s modern history, effectively ending its presence in the standalone branded casual dining market and accelerating its transition towards a more streamlined, hotel-led model.
Evoke, the owner of William Hill and 888 has announced plans to shut around 270 betting shops across the UK, as the embattled gambling group battles rising costs, heavy losses and mounting tax pressure. The restructuring is expected to result in hundreds of job losses, although the group has not yet confirmed how many staff will be affected.
The British Retail Consortium, Food and Drink Federation, Recruitment and Employment Confederation and UKHospitality said in a letter to the government that the guaranteed hours rules ‘would threaten jobs’ and lead to poorer opportunities and conditions for workers. The new rules would require bosses to offer a fixed contract with guaranteed hours to qualifying workers, who have worked at least 12 weeks. The government is currently consulting on how it will implement the rules, and the results of this inquiry were first due to be released last autumn but have since been delayed.
https://www.gbnews.com/money/rachel-reeves-blasted-as-economically-illiterate
A report by property consultancy Allsop reveals that nearly 42% of over 1,000 surveyed landlords plan to stop renting. Additionally, 48.4% intend to sell some or all of their properties. Seb Verity from Allsop noted that regulatory changes, rising mortgage rates, and higher taxes are challenging smaller landlords.
The latest figures from the CBI (Confederation of British Industry) confirm a historic downturn for the UK retail sector. The -68 reading for April 2026 isn’t just a slump, but the lowest point recorded since the Distributive Trades Survey began in 1983. This collapse far exceeded analyst expectations (which predicted a reading around -42 to -48) and underscores a severe crisis in consumer confidence.
Deloitte’s latest London office crane survey shows that Sir Keir Starmer’s hopes of getting Britain building have been dealt a major setback after office construction in London plunged 35% to its lowest level in a decade. Construction work began on around 4.8 million square feet of office space in the capital in 2025. It found the number of new-build office projects more than halved year-on-year to just 1.6 million square feet of space. Deloitte warned that the slump in building work risked leaving the UK with a shortage of office space as soon as 2027.
From January 2026, digital platforms such as Airbnb, Vinted and other online marketplaces have begun sharing detailed earnings data directly with HMRC under new international reporting requirements designed to clamp down on undeclared income. The rules cover a wide range of activities, including short-term property lets, online resale of goods, taxi and courier work, and freelance services carried out through digital marketplaces. Seb Maley, chief executive of tax insurance provider Qdos, said many workers may not yet have grasped the scale of the change or its potential implications.
The ONS reported that UK exports to the US plunged after Trump’s ‘liberation day’ tariffs blitz in April 2025 leaving the UK running a trade deficit with its largest trading partner. Goods exports to the US, excluding precious metals, fell by £1.5 billion, or 24.7%, following the introduction of tariffs.
USA
Fed Chairman nominee, Kevin Warsh, testifying at the Senate Banking Committee said he wants to shrink the Fed’s balance sheet from its current $6.7 trillion, arguing that large holdings benefit Wall Street over Main Street, contribute to higher short-term rates, and have dragged the Fed into political territory. He also plans to coordinate with the Treasury Secretary to achieve this, though specifics remain vague. Warsh emphasised that any changes would be slow and well-communicated. The Fed’s balance sheet ballooned from under $1 trillion before the 2008 financial crisis to a $9 trillion peak in 2022, and a New York Fed projection suggests it could reach $10 trillion by 2035 without intervention; a trajectory Warsh clearly wants to reverse.
US economic growth picked up in the first quarter of 2026 at an annualised rate of 2%, but slightly below industry expectations. The economy was buoyed by investment growth, which has picked up compared to the last quarter of 2025, even in the face of headwinds from the war in Iran.
The core PCE price index, the Fed’s preferred inflation gauge, accelerated a seasonally adjusted 0.3% for the month, pushing the 12-month inflation rate to 3.2%, in line with consensus forecasts. Initial jobless claims totalled a seasonally adjusted 189,000 for the week ended 25 April, the lowest since 1969.
US stocks enjoyed their best month in April since 2020 as investors shrugged off disruptions from the Iran war and picked winners and losers in Big Tech. A day after quarterly earnings reports pointed to a surge in AI investments among the world’s largest tech firms, Meta and Microsoft’s stocks sank on concerns over their high spending, while Alphabet and Apple surged. The S&P 500 rose to a fresh all-time intraday high on Friday, boosted by Apple shares. The Nasdaq Composite added 0.8% and had also scored a new all-time high.
The number of booksellers in the US has jumped 70% since the pandemic after years of decline. There were 5,000 bookstores registered with the American Booksellers Association in 1995. By 2019, with the rise of Amazon, that had fallen to 1,889. But since 2020 it has recovered significantly, with 3,200 members. Print books in general remain popular, resisting the move to digital seen in other media, such as music and film. Four of every five books sold are physical, and sales have actually gone up in recent years.
The EU
The financial markets are pricing in a 72% chance of a June ECB rate rise if inflation broadens.
German inflation rose in April, but by less than feared, suggesting the inflationary shock remains, for now, largely confined to higher energy prices, with knock on effects still limited.
Euro zone inflation jumps to 3% as economic growth almost stalls, expanding by a meagre 0.1% in the first quarter of 2026 as the Iran war hampers growth in the region and inflation pressures intensify.
Economists fear Europe could be facing a period of “stagflation”, low growth, rising inflation and unemployment as the war prompts a global energy crunch, price rises and dents business and consumer confidence.
Tensions between the EU and China have flared up again. On Monday, China attacked the bloc’s Made-in-Europe strategy aimed at promoting local industry and threatened to retaliate; Beijing also chastised Brussels for including Chinese companies in its latest anti-Russia sanctions package. The escalations come as new data shows that a flood of Chinese EVs to the European market led Beijing to a record trade surplus with the EU in the first quarter, fuelling the bloc’s push to shield strategic industries.
Others
The Rhodium Group, a research firm, reported that the total number of births in China in 2025 was7.92 million. That’s less than half the number a decade ago, and the lowest since 1939. Separately, the UN projects that the number of working-age Chinese adults will shrink by two-thirds by the end of this century, at which point China’s overall population will be only slightly larger than that of the US. The shift has huge economic implications, Rhodium noted, hitting consumption and labour productivity. And per a RAND study, demographic decline will “upend China’s ability to grow its economy, strain its education and healthcare systems, and threaten its national security.”
China’s industrial profits jumped 15.8% in March from a year earlier, slightly faster than the 15.2% pace seen in the first two months of the year. This came despite pressure on factory margins from higher global oil prices.
Defence spending across Asia rose at its fastest pace since 2009, dominated by China with Beijing increasing military outlays in 2025 by 7.4%, its 31st consecutive year of annual increases, according to a new report by the Stockholm International Peace Research Institute. Meanwhile, India’s grew by 8.9%, Japan’s rose to its highest share of GDP since 1958, and Taiwan saw the largest annual increase since 1988.
China suspended new robotaxi licenses after a major system failure in Wuhan last month. Around 100 Baidu Apollo Go vehicles suddenly stopped on city streets, and some passengers were stranded in fast-moving traffic. Authorities have called for a review and prevented firms from adding new autonomous vehicles to their fleets.
The headline annual inflation rate in Australia came in slightly below expectations at 4.6%, compared with the 4.8% expected. The closely watched trimmed mean inflation measure, which strips out volatile items, was unchanged at 3.3%, broadly in line with forecasts. The financial markets forecast for a rate rise on Tuesday fell from 80% to 74% on the data release.
Dubai is doubling down on its bet that Gulf beachfront property will be in demand from luxury buyers for decades to come. The emirate has just 45 miles of natural shoreline, but artificial islands and peninsulas have provided far more beachfront for its 4 million residents, and the millionaires and billionaires who collect such properties. Its biggest offshore development to date, Palm Jebel Ali, will add another 90 kilometres of coast. This week, state-owned developer Nakheel awarded contracts worth more than $950 million for 544 villas on the island, which should be ready by 2028. When the whole project is finished, it will be twice the size of the existing Palm Jumeirah down the coast, with 35,000 homes and 80 hotels.
The UAE (United Arab Emirates) left OPEC (Organization of the Petroleum Exporting Countries) on Friday in a major blow to the cartel that coordinates production among many of the world’s largest oil producers. The shock announcement comes after the UAE was the target of missile and drone attacks for weeks by fellow OPEC member Iran. Tehran’s blockade of the Strait of Hormuz has also severely constrained the UAE’s ability to export oil, threatening the foundation of its economy. The UAE was the third-largest producer in OPEC in February behind Saudi Arabia and Iraq. It joined OPEC in 1967, seven years after the organization was founded. The UAE did not clearly state why it decided to leave OPEC now.
Brent crude oil prices spiked by 7.1% to $126.41 a barrel, afour-year high before ending the week at $109.
The shutdown of the Straits of Hormuz has bottled up roughly a third of the world’s helium, much of which is produced in Qatar. Helium is essential for the global semiconductor industry, which uses it for precise temperature control while making the microchips that are used in automobiles, electronics, and weapons. Spot prices for helium, which is hard to store for long periods, have more than doubled since the Iran war began. The supply crunch comes as chipmakers are already under pressure to keep up with demand for chips that can handle AI applications. Industry experts warn that unless the helium shortage deflates soon, the world’s top chipmakers may have to start cutting back on production and increase prices in the end for users.
Stranger than fiction
Sodium-ion batteries are hitting the market at scale. These batteries last longer than their lithium-ion counterparts, work in extreme temperatures, and their components can be sourced sustainably, reducing the harm from mining. Sodium is 1,000 times more abundant than lithium. China’s CATL has signed a deal to supply 60 GWh of these batteries to energy storage integrator HyperStrong, batteries that can slot into existing systems, making them easy to roll out.
More than one in four parliamentarians worldwide are now women, up from 11.7% in 1997. It’s been a slow steady climb, one that’s continued through political turbulence, economic shocks and a global pandemic.
Quote
Hilaire Belloc, “A people that has forgotten its traditions, its ancestors, and the sacrifices that bought its freedom is a people already conquered. For the man without memory is easily ruled, and the man without roots is easily led.”
