Chancellor rejects calls for new levy on super-rich whilst facing £50bn budget shortfall
Rachel Reeves has firmly rejected demands for a wealth tax on Britain’s super-rich, dismissing the proposed levy as “unproven” and potentially damaging to revenue streams, as pressure mounts to fill a £50 billion hole in the public finances ahead of the November Budget.
The Chancellor’s stark rebuke came during heated exchanges in the Commons today with Labour backbencher Steve Witherden, the MP for Montgomeryshire and Glyndŵr, who urged the government to protect working people by taxing the wealthy rather than pursuing “regressive” spending cuts.
Her comments arrive at a particularly sensitive moment for Labour, with Emily Thornberry placing a wealth tax at the heart of her campaign for deputy leadership, listing it as one of her key issues alongside welfare, Gaza, and special educational needs provision.
Ms Reeves told MPs: “Some countries around the world do have a wealth tax, but countries like Switzerland for example don’t have inheritance tax. I think it would be a mistake to get rid of inheritance tax and replace it with an unproven tax without knowing what revenue it would bring in.”
The Chancellor’s rejection comes despite mounting pressure from trade unions and the Labour left to introduce a 2 per cent levy on assets above £10 million, which advocates claim could raise £24 billion annually for the Treasury. Paul Nowak, TUC general secretary, told the BBC that ministers should not “take anything off the table”, highlighting that Britain’s “big four” high street banks made £46bn in profits in one year alone.
The timing of Reeves’s dismissal is particularly awkward given Thornberry’s high-profile intervention in the deputy leadership race. In a post on X, Thornberry – who was snubbed for a cabinet role by Starmer – said: “We fought hard for a Labour government. But we’ve made mistakes and must listen. Welfare. Gaza. Wealth tax. Changes to come on SEND.”
The former shadow foreign secretary added pointedly: “I will be a voice for the membership, unions, PLP, and our constituents – not just nod along.
Markets have been pushing up the interest rates on government borrowing over recent weeks in a sign of doubts that Ms Reeves will take tough action. The Chancellor is under enormous pressure to balance the books, with warnings that the funding gap could reach £50 billion amid a slowing economy, rising debt interest costs, and calls for increased spending.
At the Budget last autumn, the government reset spending plans to recognise the £22 billion forecast overspend against day-to-day spending totals set at Spring Budget 2024, and provide much needed investment in public services. However, the fiscal challenges have only intensified, with the Treasury desperately seeking new revenue sources whilst constrained by manifesto pledges not to raise income tax, national insurance, or VAT.
The TUC leader argued that Britain’s tax framework excels at extracting revenue from employment but fails to capture wealth effectively, creating what he termed “the big inequality” seen in Britain. Nowak warned that without bolder reform, Labour risks losing public trust and driving voters towards Nigel Farage’s Reform UK.
The wealth tax debate has exposed deep divisions within Labour’s ranks. Whilst Reeves boasted about existing measures targeting the wealthy – including the abolition of non-dom status, increased capital gains tax, and VAT on private school fees – critics argue these fall far short of what’s needed.
The academics on the Wealth Tax Commission recommended against an annual wealth tax, but supported a one-off retrospective tax raising up to £260bn over ten years. However, international evidence offers little encouragement for advocates. The recent Spanish tax – which adopted the modish idea of only hitting the very wealthy – raised a pathetic €630m.
Switzerland’s approach has become a particular point of contention in the debate. All cantons levy a net wealth tax based on the balance of the worldwide gross assets minus debts, with rates ranging from approximately 0.10% to 0.88%. However, in all cantons, spouses are exempt from inheritance and gift taxes, and most cantons also exempt direct descendants.
This Swiss model presents a complex picture that Reeves appears reluctant to replicate, particularly given the different tax structures and economic contexts between the two nations.
The Chancellor’s position has drawn sharp criticism from backbenchers like Witherden, who has been particularly vocal about the government’s approach to welfare cuts. Witherden said he had specific concerns about any changes to Personal Independence Payments, or PIP, and he did not want disabled people’s ability to work jeopardised.
“Total wealth between the top and bottom 10% grew by 48% from 2011 to 2019, by 49% between the top and middle 10%. This is directly corrosive to faith in democracy,” Witherden argued in a recent article, warning that cuts to disability benefits whilst refusing to tax wealth would open the door to the far-right.
The Treasury’s challenges are compounded by business concerns about Labour’s economic policies. Businesses have been increasingly voicing alarm about the impact of Labour’s policies, including the national insurance hike and employment rights’ overhaul.
Economists told Big Issue that a wealth tax could generate as much as £24 billion a year – five times the £4.8bn Rachel Reeves expects to save from welfare cuts annually. Tax Justice campaigner Caitlin Boswell described the Spring Statement as “a massive missed opportunity to generate a significant amount of wealth by taxing the most wealthy.”
During today’s Cabinet briefing on the economic situation, Ms Reeves said the Government would ‘deliver economic stability and public investment so that consumers have the confidence to spend and businesses have the confidence to invest’. She acknowledged there was more the Government “must do to attract international investment, drive jobs and growth across the country, get Britain working, back the builders and not the blockers, and buy British.
The Chancellor’s firm stance against a wealth tax sets up a potential clash with Thornberry and other Labour figures pushing for more radical fiscal measures. Education Secretary Bridget Phillipson and backbench MP Bell Ribeiro-Addy have also announced bids for the deputy leadership, with candidates requiring at least 80 nominations from Labour MPs by Thursday’s deadline.
Health Secretary Wes Streeting said he would “certainly prefer” the next deputy leader to be a woman, adding: “Without being disrespectful to some brilliant women in London who are standing, like Emily Thornberry, who I’ve got lots of respect for, I can well understand why lots of my colleagues are saying we should have a deputy leader from outside London to broaden perspectives.
The wealth tax debate reflects broader tensions within Labour about how to address Britain’s fiscal challenges whilst maintaining electoral credibility. Real GDP growth is forecast to pick up from close to zero last year, to 1.1 per cent this year, 2.0 per cent in 2025, and 1.8 per cent in 2026. However, this modest recovery provides little relief for a Chancellor facing enormous spending pressures.
As the November Budget approaches, Reeves faces an increasingly impossible balancing act: finding tens of billions in additional revenue whilst honouring manifesto commitments, maintaining business confidence, and preventing a rebellion from her own backbenches. Her dismissal of a wealth tax may have drawn a line in the sand, but with figures like Thornberry mobilising support for the levy, this debate is far from over.
The Chancellor’s insistence that inheritance tax remains a more reliable revenue source than an “unproven” wealth tax suggests she is prioritising fiscal certainty over ideological boldness. Whether this pragmatic approach will be sufficient to address Britain’s mounting economic challenges – or satisfy increasingly restive Labour MPs – remains to be seen.
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Image Credit:
Chancellor Rachel Reeves delivers press conference on ‘Fixing the Foundations’, HM Treasury (29 July 2024) — photo by Zara Ferrar / HM Treasury, OGL 3.0
