In this week’s edition, we take a look at the fallout from Rachel Reeves’ second Budget, highlight some of the inaccurate commentary around it and suggest how property owners might react to the 2% rise in dividend tax.
Highest tax rate? Take a breath
There’s been a lot of noise this week about Britain hitting its “highest ever tax rate.” The claim sounds dramatic — but it simply isn’t true. When looking beyond the post-war era, historical tax levels were significantly higher, particularly in the 1800s when the government relied heavily on taxation to fund repeated and often questionable wars.
What is true is that today’s tax burden is the highest since WWII. But to understand what’s actually happening to ordinary people, we need to look more closely at income tax specifically – and that picture is far more nuanced.
You’d be surprised
Although it’s fashionable for politicians to talk about “working people” being crippled by income tax, the basic rate today is among the lowest we’ve seen this millennium. The real issue isn’t the rate but the freezing of thresholds. People are being dragged into higher tax brackets thanks to wage inflation and static allowances.
For years, under Conservative governments, thresholds rose quickly and quietly. The system felt generous. Now that those thresholds have been frozen for a decade, it feels like a squeeze even though the headline tax rate remains historically low.
It’s not a surplus
Much of the pre-budget narrative suggested Labour needed to raise taxes to plug a financial gap. That framing never truly held water. The idea of a “£4 billion surplus” is misleading: it refers to headroom, not actual spare money.
Headroom is simply the margin between what the Office for Budget Responsibility forecasts the government will spend over five years and the fiscal rules the Chancellor must meet. When you’re working with figures in the trillions, a few billion either way is tiny. Had Reeves presented a budget with only £4 billion of headroom, it would have looked reckless – the political equivalent of landing a jumbo jet on a postage stamp.
By increasing that margin into the twenties (still below the historical average of around £30bn), she met expectations for credibility.
Reinvest is best
One of the most painful changes this week for many business owners is the rise in dividend tax..
The increase is steepest at the basic rate level, jumping from 8.75% to 10.75%. That’s a roughly 22% increase in relative terms. Higher-rate payers see a smaller proportional rise. The impact falls most heavily on modest dividend-takers such as freelancers, contractors, and owners of small trading companies. In other words, it’s a regressive policy.
It also hits anyone with a share portfolio, despite the government’s professed desire to encourage investment in UK companies.
So what should business and property owners do now?
For many, the answer is to reinvest rather than extract.
In our own property businesses, reinvestment has long been the strategy, and this tax change reinforces that. Growth companies become more attractive relative to income-producing ones because capital gains tax remains untouched. That creates a quiet incentive: build value, don’t take cash – at least not yet.
Anyone without an exit plan should create one. If you don’t plan your exit, the exit will eventually happen to you.
Rent rises
Then there’s the imact on property. Around 94% of rental homes in the UK are owned in personal names. The new tax change affects landlords with mortgages and those without them – and the latter generate much higher profits.
Because demand for housing is highly inelastic, landlords are able to pass on higher taxes to tenants quickly, often with 60–100% pass-through rates. Rent inflation had just begun to cool (still around 5% annually), but this move will almost certainly push it up again.
This mirrors last year’s rise in employer national insurance contributions, which fed directly into price inflation across the economy.
Just work more!
For some people, the practical response is simply to work more to cover the increase. For businesses, it’s a moment to revisit extraction strategies – salary vs dividends, reinvestment vs income, and the potential benefits of long-term capital gains instead of short-term payouts.
Kemi takes the limelight
On Budget Day, one standout was not the Chancellor but the woman opposite. Kemi Badenoch delivered a sharp, forceful response at a moment when she’s under pressure over her leadership and the threat posed by Reform and Nigel Farage.
While some of her attacks felt unnecessarily personal – the “Rachel from Accounts” line has been used far more aggressively than similar jabs aimed at past Chancellors – her broader critique was well-constructed. She’s an adept communicator and made a strong impression, even among non-Conservative audiences on social media.
Still, she faces a huge uphill climb. The Conservatives are scarred by the political fallout from the pandemic, just as the Lib Dems were scarred by tuition fees in 2010. Recovery may take much longer than a single electoral cycle.
Mortar & Margins is produced in Solihull by Propenomix. Its editors are Duncan Hooper and Adam Lawrence