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The Investor Test: Taxing income from wealth without hitting Britain’s retail investment

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Budget 2026 Economic Growth Tax The Citizen Economy
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For decades, economic policy has been limited by short-termism and top-down, lever-based policies which fail to drive national system-change. Demos now aims to build a ‘Citizen Economy’ – one which strengthens the public legitimacy needed for long-term decisions, and engages with questions of culture, social relationships, pride and place to unlock economic systems-change. The tax system is central to this diagnosis. A lack of public legitimacy has prevented successive governments from making the bold changes needed for a fairer, simpler, pro-growth tax system.

The 2026 Budget provides an opportunity to turn the dial. While calls for a perfectly efficient tax system are critical, we cannot overlook the political constraints. A perfectly efficient tax system requires building public legitimacy for bold reform. This Demos series, A Citizen Budget 2026, lays out how the government can build that legitimacy through pro-growth tax reforms.

This briefing paper outlines how the government can, by taxing income from wealth at the same rates as income from work, build public legitimacy while simultaneously raising revenue and improving economic efficiency. Subsequent papers and outputs will outline policies that build legitimacy across the fiscal system to enable broader tax reform elsewhere:

  1. Taxing Extraction: Tax reforms which signal what the government is against and willing to raise revenue from – specifically extractive, harmful or unproductive economic activity
  2. Funding the Future: Tax reforms reflecting the principles by which the government intends to fund future spending needs – social care, council house building and support for young families
  3. The National Bond: Using fiscal policy to drive national unity by issuing ‘UK Security Bonds’
  4. A Stronger Fiscal Contract: Improving value-for-money in government spending to unlock support for tax rises
  5. A DOGE on Tax: A new institution which builds legitimacy and challenges orthodoxy to unlock long-term disruptive tax reform