Taxing wealth is complicated.
Taxing extreme consumption can be remarkably simple.
Our VAT reform proposes lower rates for essential goods and services and sectors where lower taxation could deliver wider economic and social benefits. But there is another side to that reform.
At the very top of the market, we believe there is a reasonable case for asking consumers to pay more.
We are not talking about taxing aspiration. We are not talking about someone saving for a nice holiday, buying a better car or occasionally staying in a five-star hotel.
We are talking about extreme luxury consumption: purchases so expensive that they sit far beyond what the overwhelming majority of British households could realistically contemplate.
A £10,000-a-night hotel suite is not an essential.
It is not ordinary consumption.
It is a choice available to a tiny fraction of society.
And we believe the tax system should recognise that distinction.
Luxury consumption is different
There is an important difference between taxing someone’s income and taxing what they voluntarily choose to consume.
Everyone needs food. Everyone needs somewhere to live. People need electricity, clothing, transport and basic services.
Extreme luxury consumption is fundamentally different.
Nobody needs to spend £10,000 on a hotel room.
Nobody is forced to fly privately rather than commercially.
These purchases are made because the consumer has sufficient disposable wealth to choose them.
That makes carefully defined luxury consumption an attractive place to raise revenue while allowing taxation elsewhere in the economy to fall.
Our wider VAT reform is therefore not simply about cutting VAT.
It is about redistributing VAT across consumption.
Essentials should attract very low taxation.
Ordinary hospitality should attract lower taxation.
Normal consumption can sit within the standard system.
But at the extreme end of discretionary consumption, we believe a higher rate can be justified.
We already tax luxury differently
The principle is not radical. Britain already operates taxes that deliberately charge more for certain premium or expensive choices.
Vehicle Excise Duty includes an Expensive Car Supplement. From April 2026, petrol and diesel cars with a list price above £40,000 are subject to the supplement, while the threshold for zero-emission cars is above £50,000. The additional charge is £440 a year for five years. (GOV.UK)
Air Passenger Duty also explicitly distinguishes between different forms of travel. From April 2026, for example, a long-distance Band C passenger in the lowest class attracts £106 of APD, compared with £253 at the standard rate and as much as £1,141 at the higher rate applying to qualifying private aircraft. (GOV.UK)
So the argument that the tax system cannot distinguish premium consumption from ordinary consumption doesn’t reflect how the UK tax system already works.
The real question is where those distinctions should be drawn.
VAT is particularly difficult to avoid
One of the recurring problems with attempts to tax very wealthy individuals is mobility.
Income can come from different jurisdictions. Assets can be held through companies. Investment structures can cross borders. Tax residency can change.
Consumption is different.
If someone wants to stay in a particular luxury hotel suite in London, they have to consume that hotel room in London.
HMRC’s VAT rules are particularly useful here. Hotel accommodation is treated as a land-related service, and the place of supply is where the property is situated, irrespective of where the customer belongs. A London hotel room is therefore a UK supply even when the person sleeping in it lives overseas. (GOV.UK)
The hotel cannot move its Mayfair suite to Monaco for tax purposes.
The customer cannot put the night they spent in London into an offshore company and somehow sleep in it somewhere else.
There will always be questions around definitions, thresholds and enforcement, but taxing immovable luxury consumption has an important advantage: the taxable activity physically takes place here.
“The wealthy will simply go somewhere else”
This is perhaps the most obvious objection.
If Britain taxes luxury consumption more heavily, won’t wealthy visitors simply go to Paris, Dubai, New York or somewhere else?
Some might. Price sensitivity does not disappear simply because someone is wealthy, and any responsible policy should recognise that sufficiently high taxes can change behaviour.
But the argument can also be overstated.
The UK’s standard VAT rate is already 20%. (GOV.UK)
Yet wealthy people still choose to visit Britain, stay in London’s premium hotels, eat in its restaurants, attend its cultural and sporting events and shop here.
That is because people do not choose London simply by opening an international VAT-rate table and selecting whichever country has the smallest number.
London itself is the product.
People come for its history, theatres, restaurants, shopping, sporting events, museums, architecture, business connections and cultural significance.
A suite overlooking Hyde Park cannot be relocated to a lower-tax country.
A table in a famous London restaurant cannot be consumed in Switzerland.
A ticket for a major event at Wembley cannot be used in Monaco.
The attraction is the experience itself.
We should celebrate Britain’s ability to attract wealth
There is another side to this debate which is sometimes lost.
Britain should be pleased that wealthy people want to spend their money here.
There is a tendency in parts of the media and online commentary to portray the UK as a country from which everyone with money is desperate to escape.
That isn’t the whole picture.
London remains one of the world’s great cities. Britain possesses globally recognised cultural institutions, sporting events, universities, restaurants, hotels, heritage and businesses.
Our objective should not be to punish wealthy visitors or wealthy British residents.
Quite the opposite.
We want them to spend their money here.
We simply think there is a reasonable argument that when someone chooses to consume something at the absolute extreme of the market, the public can receive a slightly larger share of that transaction.
What does 30% actually mean?
Consider a hypothetical £10,000 hotel stay.
The important thing when comparing VAT is whether the quoted price is VAT-inclusive or VAT-exclusive.
If £10,000 is the pre-VAT price, 20% VAT adds £2,000, producing a £12,000 bill.
At a 30% luxury VAT rate, VAT would instead be £3,000, producing a £13,000 bill.
The difference is £1,000.
For someone voluntarily purchasing a £10,000 hotel room before tax, we do not believe that additional £1,000 represents the same economic hardship that an additional tax on electricity, basic food or an ordinary family hotel room would create.
And that is precisely the point.
Tax should recognise the difference between necessity and extraordinary discretionary spending.
Wealthy consumers aren’t shopping by the VAT line
At this end of the market, the purchasing decision is fundamentally different.
Someone considering whether they can afford a £120 hotel room may absolutely compare prices carefully.
Someone spending £10,000 for a night has already demonstrated an extraordinary ability and willingness to pay.
That does not mean wealthy consumers are completely insensitive to price. They aren’t.
But it is reasonable to question whether someone selecting a £10,000 suite is going to abandon London solely because the tax component of that exceptionally expensive purchase has increased.
That is an empirical question and thresholds should therefore be reviewed against actual behaviour.
We would rather design tax policy around evidence than simply assume that every wealthy consumer will disappear the moment taxation increases.
This must be narrowly targeted
There is an important warning.
Luxury cannot simply mean expensive.
A £50,000 specialist vehicle may be essential to someone’s work. An expensive piece of machinery is not a luxury because it has a large price tag. A family paying unusually high accommodation costs during a major event should not suddenly find themselves caught by a poorly designed luxury tax.
Nor should every five-star hotel automatically be treated as something exclusively consumed by millionaires.
The definition needs to capture extreme discretionary consumption, not comfortable living or occasional treats.
Different markets may therefore require different definitions: price thresholds, product characteristics, existing classification systems or combinations of them.
Those details should be developed with HMRC, industry and tax specialists and periodically reviewed.
The principle comes first.
Tax consumption, not aspiration
Our proposal isn’t based on hostility towards wealth.
We want successful businesses.
We want entrepreneurs.
We want international visitors.
We want wealthy people choosing Britain as somewhere to live, visit, invest and spend.
But if government needs to raise revenue, there is a legitimate question about where that revenue should come from.
Should we put another percentage point on something millions of households need?
Should we increase taxes on ordinary pubs, restaurants and hotels?
Or can we ask for a little more from transactions that exist at the absolute extreme of discretionary consumption?
Our answer is the latter.
A modern VAT system should recognise that a loaf of bread, a £200 hotel room and a £10,000 hotel suite are not economically equivalent simply because all three are things somebody has purchased.
Protect necessities.
Encourage ordinary economic activity.
And where consumption becomes extraordinary, ask it to contribute more.
That isn’t a tax on aspiration.
It is a tax system that understands the difference between needing something, enjoying something and consuming something that almost nobody else could ever afford.