Rachel Reeves could impose a ‘one-off’ tax on wealth to appease militant Labour MPs, according to a report today.
In a major analysis ahead of next month’s Budget, the Institute for Fiscal Studies warns the Chancellor against imposing a permanent wealth tax, saying similar attempts have failed around the world.
But the respected think-tank says a ‘one-off’ raid would be far harder for the rich to dodge as they would have no opportunity to move their assets.
‘While there are serious drawbacks to a recurring wealth tax, a tax based on an unexpected and credibly one-off assessment of existing wealth could in principle be an economically efficient way to raise revenue,’ the report says.
The Treasury last night refused to rule out a one-off wealth tax when asked if the Chancellor was considering implementing the proposal at the Budget.
Shadow Chancellor Mel Stride said: ‘Keir Starmer and Rachel Reeves have no backbone. They are too weak to take difficult decisions and face down the Left of their party – and that means yet more tax rises are coming.
‘A wealth tax would drive investors and wealth creators away from the UK, when thousands have already left thanks to Labour’s self-defeating tax raids.’
Labour MPs, including some ministers, are piling pressure on Ms Reeves to impose a wealth tax to fill a black hole in public finances estimated at £30billion.
Supporters claim a 2 per cent charge on assets of more than £6million could raise as much as £10billion a year. The Chancellor has signalled she is not in favour of a permanent wealth tax.
Chancellor of the Exchequer, Rachel Reeves, poses with the red Budget Box last October
The Prime Minister (pictured) has been dubbed as ‘weak’ by Shadow Chancellor Mel Stride
Shadow Chancellor Mel Stride said: ‘Keir Starmer and Rachel Reeves have no backbone’
Today’s IFS report says the idea would ‘incentivise’ the rich to leave the UK. ‘International experience of annual wealth taxes is not encouraging,’ it says.
‘They have been abandoned in most of the developed countries that previously had them.’
The think-tank suggests the Chancellor should consider other options if she feels the need to clobber the rich. Ideas floated include increasing levies on the dead – the report says ending the current capital gains tax exemption on the assets of the deceased could raise £2.3billion a year.
Raising rates by 1 per cent on inheritance tax, dividends and interest could raise a further £1billion.
Today’s report warns that Ms Reeves will struggle to generate substantial sums without breaking Labour’s manifesto commitment to not raise income tax, national insurance or VAT.
The think-tank urges her to focus on reform. Director Helen Miller said: ‘There is an opportunity to be bold and take steps towards a system that does less to impede growth and works better for us all.
‘Muddling through by simply raising rates of current taxes might appear the easier option… but relying on badly designed taxes to bring in additional revenue will bring unnecessary economic damage.’
The analysis suggests extending the six-year freeze on income tax and national insurance thresholds for a further two years could raise £10.4billion.
The move would mean that a tax raid estimated to raise £10billion a year after the pandemic would end up generating five times that amount by the end of this decade, with millions of people dragged into higher tax bands.
Today’s report warns that Ms Reeves will struggle to generate substantial sums without breaking Labour’s manifesto commitment to not raise income tax, national insurance or VAT
The report suggests Ms Reeves could raise £1.3billion a year by forcing working pensioners to pay national insurance for the first time – but warns many could decide to just give up work.
And it suggests the Chancellor may be considering a new ‘levy’ on income to fund increased spending on defence and the NHS in a way that does not directly breach Labour’s manifesto.
Today’s report warns against cutting pension tax relief for high earners, saying the idea ‘should be avoided’ and that it could hit millions of public sector workers like nurses and teachers.
However, the study says rules allowing people to withdraw 25 per cent of their pension pot as a tax-free lump sum are ‘ripe for reform’. Ideas include capping withdrawals at £100,000.
It comes as a Cabinet minister dropped another hint Labour is on the verge of axing the two-child benefit cap. Education Secretary Bridget Phillipson said she was ‘confident’ the Government will ‘do the right thing’.
Ms Reeves has reportedly signalled the better off will be forced to ‘contribute more’ as she prepares to raise taxes at the Budget on November 26.
A Treasury spokesman said the Budget ‘will strike the right balance’.
