Former Labour minister Anneliese Dodds has urged the government to consider a wealth tax at the next Budget in order to plug holes in the public finances.
The former shadow chancellor – who quit Sir Keir Starmer’s government in February over the PM’s decision to cut the foreign aid budget to fund a boost in defence spending – warned that spending cuts will not “deliver the kind of fiscal room that is necessary”.
It comes amid mounting questions over how the government will raise the money to fill the black hole in the public finances left by a series of major U-turns and spending commitments.
Ministers have already squeezed significant savings out of their departments in cuts that were unveiled at last month’s spending review, meaning there is now a mounting expectation that the chancellor, Rachel Reeves, will be forced to raise taxes instead.
But Labour’s manifesto pledge not to raise taxes on “working people” leaves the chancellor with a limited number of workable options.
Speaking to Sky News’s Electoral Dysfunction podcast, Ms Dodds pointed to work undertaken by the Commission on Wealth Tax.
“They looked at the operation of lots of different wealth tax. They looked at all of that evidence and set out how it would be possible to deliver something like that in a UK context”, she said.
“I would hope that the Treasury is considering that kind of evidence as well as other changes that have been put forward.
“We’ve seen the deputy leader of the Labour Party, for example, put forward suggestions. I think it’s important for all of those to be considered now.”
It comes after a memo leaked earlier this year showed Angela Rayner suggesting eight wealth taxes on the super-rich and corporations in a move supporters described as the “progressive alternative”.
Ms Dodds added: “I don’t think you can, particularly via cuts, actually deliver the kind of fiscal room that is necessary. But I know Rachel will be thinking deeply about this.”
The Labour MP for Oxford East also urged the government to take a “longer-term approach” to the public finances, after the prime minister was bounced into a £5bn U-turn on welfare cuts by his own MPs.
Speaking about the welfare cuts, Ms Dodds said: “It can sometimes seem like the right thing to do for tactical reasons, in order to deal with a gap that had opened up because of the OBR’s assessment, to try and plug that by cutting spending.
“It may make sense tactically, but strategically, a longer-term approach is needed and that’s the big issue that the government has to face up to.”
The government has so far failed to rule out a wealth tax, but the prime minister has previously said that “we can’t just tax our way to growth” when pressed on the subject at PMQs last month.
Rachael Maskell, the leader of the rebel Labour MPs who forced Sir Keir to abandon his welfare reforms, called for a wealth tax to meet the cost of the U-turn, suggesting that as much as £24bn a year could be raised by increases in capital gains tax and other measures.
Meanwhile, the decision to extend winter fuel payments to millions more pensioners following a U-turn on the issue earlier this year will cost the Treasury a further £1.25bn.
The Treasury has been contacted for comment.
