The government says it wants to revitalise the UK stock market, yet its own Budget pushes investors in the opposite direction. The contradiction is remarkable.
You can’t champion London as a world-class equity centre while simultaneously raising the cost of holding the income streams that define the market’s appeal.
Dividend investing has long been the backbone of the UK’s equity culture. London is known globally for companies that produce reliable, often generous, income distributions.
These are the stocks that anchor pension portfolios, provide stability during volatile periods, and give households a sense of long-term financial confidence. They form the very identity of the FTSE. The decision to raise tax rates on dividends by two percentage points from 2027 strikes directly at that core strength.
Once the new structure arrives, basic-rate taxpayers will see rates move to 10.75% and higher-rate taxpayers will face 35.75%. That shift reduces the post-tax value of holding income stocks outside the confines of ISA or SIPP allowances.
However, the vast majority of meaningful portfolios cannot fit entirely within those wrappers. Serious long-term investors therefore face a choice: reduce exposure, take dividends sooner, or redirect capital abroad.
None of those outcomes support London’s ambition to draw more listings, attract more domestic shareholders, or strengthen market liquidity.
It is not just dividends that suffer. Interest income and rental profits will face a similar two-point increase across all tax bands.
For savers, that means the return on cash becomes narrower.
For property investors, it means lower net yield on rental income. The Treasury expects to collect hundreds of millions annually from these changes, and more than a billion from dividend taxation alone. Those figures reveal just how widely the impact will be felt.
These measures arrive at a moment when the UK stock market is already fighting to retain relevance against global competitors.
New York continues to dominate growth listings. European bourses attract specialist sectors the UK once aimed to lead. Asian exchanges pull companies with global ambitions. Against that backdrop, one would expect a Budget designed to support domestic participation. Instead, the government has chosen an approach that weakens it.
Raising the tax burden on investment income erodes the incentive to commit to UK equities. It hardens the perception that the rewards for owning British shares are shrinking, and perception matters.
Markets depend on confidence. If long-term investors begin to see UK equities as second-best from a tax perspective, capital will gradually shift to places where dividends and savings are treated with greater respect.
There is also a behavioural dynamic that policymakers seem to have ignored. When future income faces heavier taxation, holders act early. They pull distributions forward. They trim exposure. They take gains before the new rules bite. The result is a subtle decline in long-term participation. That undermines the depth and resilience of the market. London needs more patient capital. This Budget delivers less.
The impact on retail investors — the very group the government says it wants to empower — is especially counterproductive. Ordinary households cannot place every pound of investment inside a tax-advantaged wrapper. They rely on general investment accounts to build wealth over time. Those accounts will now suffer a heavier drag on every dividend received. This drag compounds.
Over a decade, the cumulative loss becomes substantial. As people realise this, enthusiasm fades. The savings culture the UK claims to be rebuilding weakens again.
At the macro level, the message sent to companies is equally damaging. If domestic investors begin to reduce their holdings because after-tax returns diminish, the valuation environment deteriorates.
It reinforces the perception that London is not the optimal place to float. It is no coincidence that UK-listed firms have been exploring moves to other exchanges. Policies like this accelerate that trend.
There are real fiscal pressures on the government, and the need for revenue is clear. But relying on higher taxes on dividends, savings and property does not create sustainable prosperity. It suppresses the very flow of capital that fuels productive investment. It leaves the country more dependent on short-term extraction and less capable of generating long-term wealth.
A Budget that burdens investors is a Budget that undermines the market. If the UK wants a stronger stock exchange, it must encourage ownership, not diminish its value.
