I am happy to take a wild stab that most people reading this blog supported the implementation of VAT on private school fees, whilst probably benefiting from it directly or via their children (mea culpa). No one said being a champagne socialist was easy or free of contradictions; our comfort with “ambiguity” makes us stronger.

But, after all, VAT on private education can be framed as a progressive tax on the voluntary consumption of a luxury good. It nudges the system closer to a broad-based consumption tax, even if our VAT code still manages to zero-rate caviar but tax toilet roll. And don’t get me started on gingerbread men.

So here’s a thought:

What about levying VAT on the consumption of financial services, a sector disproportionately used by the wealthiest households, which structurally advantages capital over labour and facilitates a vast industry of “tax mitigation”?

It is time to end the blanket VAT exemption for financial services, not as a punitive gesture, but as a correction to one of the most economically distortive features of our tax system.

As a member of Patriotic Millionaires UK, I believe we should tax wealth over work. Our totemic proposal is a direct wealth tax, but there are other, less theatrically difficult and immediate ways to tax rentier sectors to fund productive, inclusive growth, or even reduce taxes on earned income.

The current VAT exemption is not neutral. Financial services are exempt rather than zero-rated, meaning firms cannot reclaim input VAT. That encourages vertical integration, reduces price transparency, distorts outsourcing decisions and embeds inefficiency. The 2011 Mirrlees Review made this point: exempting financial services from VAT undermines production efficiency and creates arbitrary distortions across the economy.

IFS modelling suggests that a well-designed reform could raise around £5–8bn annually, depending on scope and design. That is enough to fund a 1p cut in income tax, properly restore Sure Start, and have enough left over to fix procurement programmes that have our soldiers literally shaken.

Its success would depend on design. If basic bank accounts and mandatory insurance products were exempted, the burden would fall predominantly on discretionary services: wealth management, private banking, corporate advisory and asset intermediation. The heavy lifting would be done by those with substantial capital at stake, not low-income households managing day-to-day finances, with the top 10% of families paying £1,500 pa extra compared to £150 for the vast majority.

This is not a new idea. As mentioned, the Mirrlees Review recommended moving toward a more comprehensive approach. The European Commission has repeatedly revisited the reform of VAT treatment for financial services. Australia applies GST to significant parts of the sector. Even Singapore, hardly a cautionary tale of anti-growth fiscal adventurism, has found workable mechanisms to tax large segments of the financial services sector without destroying competitiveness.

The principal objection is always the same: competitiveness. London is a world-class financial centre, and any change must preserve that status. But it is far from clear that modest VAT reform on domestic consumption of financial services would trigger an exodus. Much wholesale activity is already zero-rated as exports. Meanwhile, greater transparency and unbundling of costs could spur innovation and competition rather than suppress it.

The second objection is that it is “too complicated.” Margin-based services are indeed harder to tax than fee-based advisory work. But complexity has never stopped us from reforming other sectors when the prize is large enough. Modern reporting systems make partial reform entirely feasible. What has been lacking is political will, not technical capacity.

Brexit was frequently sold as an opportunity to design smarter regulation and taxation outside EU constraints. VAT reform in financial services was long considered difficult within the European framework. If regulatory sovereignty means anything, it surely includes the freedom to correct obvious distortions in our own tax base.

So here we are. A sector that benefits disproportionately from the growth of asset prices, that intermediates wealth rather than produces it, and that enjoys a structural VAT exemption unavailable to most of the economy.

As I settle down with a pint bottle of Pol Roger for Sunday lunch, I can’t help thinking: wouldn't it be nice if we could have two Brexit benefits?

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