Taxing Extraction: Taxing Extractive and Unproductive Sectors to support British Households in need

This paper sets out how the government can rebuild public trust in the tax system by targeting extractive and unproductive economic activity, while raising revenue to support households facing cost-of-living pressures. It argues that tax reform must do more than raise money. The government also needs to show the public what kind of economy it wants to build, and what kinds of economic activity it is unwilling to give tax advantages to.

As part of Demos’s **A Citizen Budget 2026** series, the paper proposes two targeted tax reforms. The first would tax cryptocurrency gains through income tax rather than capital gains tax, raising an estimated £250 million to help fund the removal of VAT from household electricity bills. The second would introduce a 200% council tax premium on second homes owned by non-UK residents, raising an estimated £195 million to support people sleeping rough.

The paper argues that these reforms would send a clear signal about the government’s priorities. Taxing cryptocurrency gains at higher rates would remove a tax advantage for investment in a largely unproductive asset, while a premium on overseas-owned second homes would recognise the pressure that such investment can place on an already constrained housing market. In both cases, the revenue raised would support households and address pressing social needs.

Drawing on public opinion research with 2,000 people, the paper finds that both proposals could improve perceptions of fairness in the tax system and increase favourability towards the government. Support for taxing second homes owned by non-UK residents is particularly strong, with 55% believing it would make the tax system fairer, compared with 14% who disagree. Both proposals also pass Demos’s ‘Makerfield test’, showing net support among people living in some of the most deprived constituencies outside London and the South East.

The paper argues that these reforms are not a substitute for the wider overhaul the tax system needs. Rather, they offer a practical way to begin rebuilding public legitimacy, demonstrating how tax policy can support the cost of living while encouraging more productive economic activity. By clearly communicating what it is for and what it is against, the government can build the public support needed to deliver more ambitious, long-term tax reform.