Chancellor Rachel Reeves told MPs on Tuesday that replacing inheritance tax with a new wealth levy would be a mistake without clear evidence of how much revenue it would raise, pushing back on calls from within her party to "soak the rich" to fill a growing gap in public finances.
Speaking in the House of Commons, Reeves said some countries operate wealth taxes, but cautioned there was no certainty over the yield of any new levy. Asked by Labour backbencher Steve Witherden whether she would protect working people by taxing the wealthy and avoid "regressive" cuts, she replied that it would be wrong to abolish inheritance tax and substitute it with an "unproven" tax without knowing what revenue it would bring in.
The remarks come amid mounting pressure on the Treasury to find tens of billions of pounds ahead of the Budget set for Nov. 26. Official and private sector forecasts have warned that a slowing economy, rising costs of servicing public debt and calls for increased spending could leave a fiscal shortfall of as much as £50 billion, figures cited repeatedly in debates inside and outside government.
Some senior Labour figures and deputy leadership hopefuls have called for higher levies on the wealthiest to help plug the gap. Emily Thornberry listed a wealth tax among her priorities when she declared her candidacy for the party's deputy leadership. Proposals floated by advocates in and around the party have included a 2 percent annual tax on assets above £10 million, which supporters say could raise billions for the Treasury, though estimates vary and no formal plan has been published.
Reeves also warned about the broader challenge of attracting investment and sustaining growth. According to a No. 10 readout, she briefed Cabinet earlier in the day on the economic situation and argued that the autumn must focus on "growing the economy in a way that makes working people better off and provides the revenues we need to fund our public services." The readout 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 said more needed to be done 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 exchange in the Commons also reflected broader market and business concerns. Markets have pushed up the interest rates on government borrowing in recent weeks, a reaction traders and analysts say signals investor unease about the government's fiscal plans. Businesses have voiced alarm about a recent national insurance rise and proposed changes to employment rights, warning those measures could affect investment and hiring decisions.
Labour ministers and MPs are divided over the mix of measures to close the fiscal gap. Some members argue progressive taxation of the very wealthy is politically and practically preferable to widespread spending cuts or tax rises on lower- and middle-income households. Treasury officials and other ministers have warned, however, that novel levies can be hard to design, difficult to administer and may raise less than headline estimates once behavioural responses, valuation challenges and avoidance are taken into account.
With the Budget less than three months away, the debate highlights competing priorities within government: the need to demonstrate fiscal credibility to markets while meeting campaign commitments and addressing public service pressures. Reeves's comments underscore a cautionary approach from the Treasury about adopting new, untested tax instruments without robust forecasts and implementation plans.
No formal policy change on wealth taxes has been announced. Any move to introduce or replace existing levies would require detailed costing, legislative time and consultation, and would face scrutiny from independent forecasters, parliamentary committees and market observers in the run-up to the autumn fiscal statement.