Rachel Reeves raised fears of a painful tax raid on Middle England as she suggested those with the ‘broadest shoulders’ would have to pay billions more.
As official figures showed the economy flatlined over the summer, the Chancellor laid the ground for a Budget that will target the better-off.
Her comments, on the fringes of the International Monetary Fund‘s annual meetings in Washington, prompted a warning that property, pensions and savings could be targeted.
While the Chancellor has ruled out a specific wealth tax, her remarks appeared to signal that she is looking to grab assets in other ways. That will intensify speculation that inheritance tax, retirement schemes or landlords could be hit.
Ms Reeves said: ‘I do think that those with the broadest shoulders should pay their fair share of tax, and I think you can see that through my actions last year at the Budget.’
It was a clear signal that after a £40billion tax-raising Budget last year, the Chancellor is preparing to break her promise soon afterwards that she would not be ‘coming back with more’.
And Ms Reeves indicated her judgment on who to target would be based on their assets – which might mean homes or savings – rather than wages.
Asked how she defined a wealthy person, she said: ‘Wealth is obviously different from income. So wealth is not about your annual salary.’ She drew a distinction between specific wealth taxes, which are ruled out, and those that ‘do tax wealth and do tax wealthy people’ some of which were increased by Labour in 2024.
While the Chancellor has ruled out a specific wealth tax, her remarks appeared to signal that she is looking to grab assets in other ways which will intensify speculation that inheritance tax, retirement schemes or landlords could be hit
They included the imposition of VAT on private school fees, abolishing non-dom status and extending taxes on private jets.
Asked where she might raise taxes, the Chancellor said: ‘Judge me on my record last year.’
Ms Reeves will need to raise taxes and cut spending by enough to fill a financial black hole of tens of billions of pounds to meet her Budget rules.
And she indicated she would like to give herself a greater margin of error against those targets – requiring even more pain. ‘More headroom requires more tax revenue or less spending on public services like the NHS,’ Ms Reeves said. ‘So you’ve got to get the balance right there.’
The Institute of Fiscal Studies has suggested £42billion may need to be raised to provide enough headroom to spare the Chancellor from a ‘Groundhog Day’ repeat scenario.
Shadow chancellor Sir Mel Stride said: ‘Under Labour nothing is safe. Not your home, not your pension, not your savings.
‘Rachel Reeves should show some real backbone and control Government spending – that includes cutting the welfare bill – rather than shaking down the taxpayer again.’
It came as a new poll showed firms are preparing to axe jobs, raise prices and slash investment if tax rises are in the Budget. The survey from the Institute of Chartered Accountants in England and Wales said many had already taken similar action following last year’s tax raid.
The institute’s chief executive Alan Vallance said: ‘Britain faces a damaging cliff edge if the Chancellor decides to raid businesses again at next month’s Budget.
‘Business confidence is fragile, investment is stalling, and everyday decisions are slowed by complexity, cost and uncertainty.’
The economy grew by a meagre 0.1 per cent in August, having shrunk by 0.1 per cent in June – meaning the UK effectively stalled over the summer. Experts fear speculation ahead of the Budget will dampen growth too.
Meanwhile, the boss of Whitbread, the owner of Premier Inn, yesterday cautioned the Chancellor against further ‘punitive’ tax increases for businesses.
Dominic Paul said Labour’s workers’ rights bill was making it harder to grow.
It comes as ministers are ‘running out of road’ and plotting a taxi tax grab, the Tories have warned.
Labour has refused to rule out slapping VAT on private hire fares, sparking speculation the Chancellor will clobber cabbies at the Budget.
The Tories warned such a move would hit people in rural areas and those with disabilities hardest, also harming the night-time economy.
Shadow transport secretary Richard Holden asked the Treasury what assessment had been made of applying 20 per cent VAT to private hire vehicle journeys on vulnerable users
Industry experts expect such a tax to raise £750million a year – by adding £2 to £3 to the cost of a typical £12 journey.
Shadow transport secretary Richard Holden asked the Treasury what assessment had been made of applying 20 per cent VAT to private hire vehicle journeys on vulnerable users.
Treasury Minister Dan Tomlinson replied: ‘The Government continues to take this complex issue very seriously and recognises businesses’ need for certainty. The Government is carefully considering the wide range of views shared through last year’s consultation on the VAT treatment of private hire vehicles and will publish a detailed response soon.’
Mr Holden said the Government was refusing to rule it out ‘because they’re planning it’.
At present most taxi operators need not charge VAT as their drivers are self-employed and earn less than £90,000.
Labour’s latest tax onslaught may still be more than five weeks away. But Rachel Reeves has given a little insight into who she will target in next month’s Budget – and it does not look good for swathes of Middle England.
Don’t be fooled by the Chancellor yesterday ruling out a ‘wealth tax’ – even if she quashed hopes among lefty Labour backbenchers of a full-blown attack on the rich.
This could have come in the form of a one-off tax or an annual levy, perhaps of 2 per cent on assets over £10million. But with entrepreneurs and wealth creators already fleeing the country, any thoughts of such a move have seemingly been abandoned.
Instead Ms Reeves said taxes on the wealthy would still be ‘part of the story’ of the Budget on November 26, but she added ominously that ‘wealth is different from income’ and ‘not about your annual salary’, saying: ‘Those with the broadest shoulders should pay their fair share of tax.’
These comments, at the annual meetings of the International Monetary Fund in Washington DC, suggest the Chancellor will stick to the manifesto pledge not to raise the main rates of income tax even if she is tempted to prolong the freeze in thresholds in a stealth raid on millions of workers.
Labour has also ruled out rises in VAT and National Insurance –though the Chancellor broke that promise with her £25billion assault on business in her first Budget.
So, if there is to be no ‘wealth tax’ on the uber-rich and no direct increase in taxes on income, what does the Chancellor have in mind? And who will pay? Far from being a ‘soak the rich’ Budget – though of course the rich will be hit – this looks set to be a Budget that will rinse the middle classes.
Everything from pensions and savings to inheritances and family homes are now a target for a grasping Chancellor hell-bent on the expansion of the State at the expense of all else.
Rachel Reeves at the International Monetary Fund headquarters in Washington
An increase in capital gains tax looks likely as does levying National Insurance on rental income and on partners in law firms and consultancies.
Another inheritance tax raid, after the hit on farms, family businesses and pensions in last year’s Budget, may be on the cards.
The cash Isa is under siege and Ms Reeves may also be tempted to raise taxes on dividends.
A shake-up of property taxes, perhaps in the form of higher council tax bands, would hit millions, including those who bought their home cheaply decades ago only to see its value rocket. Many will be retired on low incomes, unable to afford whatever levy is planned.
Talk of a mansion tax has already morphed from a raid on homes worth over £2million to those valued at £500,000. Across most of the country, mansions they are not.
Much will depend on who Labour decides has the ‘broadest shoulders’. Presumably this does not include the ‘working people’ Labour has pledged to protect.
Hapless ministers were tied in knots when asked to define such a person around the time of the last Budget – something that may be about to repeat itself if they are asked who these broad-shouldered taxpayers are this time around.
Keir Starmer eventually defined a working person as someone who can’t ‘write a cheque to get out of difficulties’ – though Downing Street later clarified they could have a ‘small amount of savings’.
If anyone with more than this is seen to be wealthy, then millions of families are in the Chancellor’s crosshairs, many for simply having a job, saving for a rainy day or retirement, and owning a home.