Labour plans to implement a 2% wealth tax to generate additional billions of pounds in revenue.
- TBA
- Mar 24
- 4 min read
Labour plans to implement a 2% wealth tax to generate additional billions of pounds in revenue.
Before Chancellor Rachel Reeves announces the Spring Budget next week, there is a growing call for the introduction of a 2% wealth tax on the richest individuals. Many Labour MPs and activists supporting the policy argue that it would address economic inequality and generate tens of billions of pounds in revenue.
The tax increase proposal, spearheaded by the campaign group Patriotic Millionaires UK, also claims that the absence of a wealth tax is costing the UK £460 million per week.
How Would a Wealth Tax Work?
The exact eligibility criteria and tax rate remain unclear. However, according to Patriotic Millionaires UK, a wealth tax should apply to individuals with assets exceeding £10 million, ensuring that only a tiny fraction of the population—just 0.04% (around 20,000 people)—would be affected.
Labour MP Diane Abbott stated: "If a 2% wealth tax were imposed on those with assets over £10 million, it could raise an additional £24 billion per year." Anti-Brexit campaigner and founder of MoneyShe.com and SCM Direct, Gina Miller, also supports a 1% or 2% wealth tax.
According to Patriotic Millionaires UK, 72% of respondents support taxing individuals with wealth over £10 million, while 65% of UK millionaires also back the idea, believing it could help fund public services and tackle the cost-of-living crisis.
Meanwhile, Chris Etherington, a private client partner at tax consultancy RSM, commented:
"The Treasury is considering raising funds through a wealth tax rather than exploring potential spending cuts."
Will Labour Actually Introduce a Wealth Tax?
Before the Autumn Budget in September 2024, Chancellor Reeves stated on the Today programme: "We will not introduce a wealth tax, but we will have to make many tough decisions regarding taxation, spending, and welfare." Earlier this month, when asked whether the government was considering a wealth tax, a Treasury spokesperson told MoneyWeek: "Our progressive tax system means that the top 1% of earners contribute nearly a third of income tax revenues, and funds from wealth and asset taxes—such as capital gains tax and inheritance tax—support billions of pounds in public services."
Whether this stance will change remains uncertain.
More than a fifth of UK adults still not looking for work
Last week, Work and Pensions Secretary Liz Kendall announced significant cuts to disability and sickness benefits, aiming to save £5 billion annually by 2030. The government hopes these measures will encourage more people into work while ensuring that benefits remain available for those who genuinely face employment difficulties.
According to the Office for National Statistics (ONS), more than one-fifth of the UK’s working-age population is currently not employed or actively looking for work. In the three months leading up to January 2025, the UK’s economic inactivity rate (the proportion of people neither working nor seeking work) stood at 21.5%, showing a slight decrease compared to the previous quarter and the same period last year.
At present, 9.27 million people in the UK are classified as economically inactive, with key reasons including long-term illness, studying, retirement, and caregiving responsibilities. The Labour government aims to raise the employment rate to 80%, compared to the current rate of 75%.
A report by Keep Britain Working found that 8.7 million people in the UK currently face work limitations due to health issues, marking a 2.5 million increase over the past decade. This includes:
1.2 million people aged 16-34
900,000 people aged 50-64
The study also revealed that individuals unemployed for less than a year are five times more likely to return to work than those who have been unemployed long-term.
At the same time, layoffs have increased for the first time in a year, with 124,000 people made redundant in the three months leading up to January 2025. Meanwhile, the Bank of England is monitoring wages and employment data to guide its interest rate policy. In its latest decision, the central bank held the base rate steady at 4.5%.
The base interest rate influences lending rates at high-street banks and financial institutions. While higher rates in recent years have led to increased borrowing costs (such as mortgages and credit cards), they have also improved returns for savers.
Economists predict that there will be two interest rate cuts before the end of 2025, with most expecting the first reduction in May.
Official data shows that government borrowing last month increased by £15 billion compared to the same period last year, with the budget deficit surpassing economists’ expectations.
According to the Office for National Statistics (ONS), the government's fiscal shortfall in February reached £10.7 billion, as both spending and borrowing exceeded projections, while tax revenues fell short of expectations.
This marks the fourth-highest borrowing figure on record since 1993 and £4.1 billion higher than economists' estimates in a Reuters poll. With public finances under mounting pressure, Chancellor Rachel Reeves faces difficult choices in the upcoming Spring Budget, including the possibility of tax hikes or spending cuts.
Additionally, tax revenues fell short of estimates from the Office for Budget Responsibility (OBR):
● Tax receipts were £11.4 billion lower than OBR’s forecast.
● Government borrowing was £20.4 billion higher than projected.
By the 11th month of the financial year, government borrowing had risen from £117.5 billion last year to £132.2 billion, an increase of £15 billion.
This is bad news for Chancellor Reeves, who is set to update the UK's economic outlook in the Spring Budget statement. Meanwhile, last month's reported budget surplus was revised down by £2.1 billion, further highlighting the challenging fiscal environment.
Economic analysts warn that these figures will likely lead to spending cuts and tax increases.
Pantheon Macroeconomics predicts that the government will announce spending reductions in next week’s Spring Budget, followed by further tax hikes in the October Budget.
The Resolution Foundation agrees, stating: "If the economy does not improve quickly, tax increases will have to be reconsidered." With sluggish tax revenues and rising borrowing costs, the UK government faces tough decisions to restore fiscal stability.
