Labour’s leadership battle lurched to the Left again today as Wes Streeting called for a wealth tax.
The former health secretary – once seen as the Blairite candidate – demanded a levy on the ‘rich’ that he claimed could bring in £12billion a year.
But the idea was immediately criticised by economists, who warned that in reality it risks reducing Government revenues and killing investment.
Downing Street also played down the prospect, insisting the system already ensures those with ‘the broadest shoulders pay their fair share’.
The intervention comes as nervous markets brace for a ‘bidding war’ in Labour that could drive the party towards more extreme policies.
Big beasts are gearing up for a contest to replace Keir Starmer within months, whether or not Andy Burnham wins the Makerfield by-election on June 18.
Rachel Reeves has already pushed the tax burden towards a record high, squeezing growth. In under two years the Chancellor has imposed measures raising an extra £75billion annually.
And there are fears a new spending bonanza could send the costs of servicing the UK debt mountain spiralling.
Wes Streeting – seen as the Blairite candidate – called for a levy on the ‘rich’ that could bring in £12billion a year
Economist Rupert Harrison, an aide to George Osborne as Chancellor, warned that the policy would actually lead to lower tax revenues
Mr Streeting laid out his plans for tax increases in an interview with the BBC’s Political Thinking podcast.
He said: ‘A member of my family is a cleaner in Lancashire. She pays a higher tax rate on her salary than her landlord pays for the growing value of the home she lives in.
‘She slogs her guts out, he puts in far less effort, yet the state rewards him more than her.
‘And we wonder why people are angry.
‘The system is penalising work. It’s not fair and it’s bad for our economy. We need a wealth tax that works.
‘A pound made from simply owning assets should not be taxed less than a pound made from a hard day’s work.’
He added: ‘The wealth gap in this country has widened… and the gap between earned income and unearned income has widened.’
Higher or additional rate taxpayers pay 24 per cent on gains they make in the current financial year.
Under Mr Streeting’s proposal that would be equalised with the income tax rate of 40 per cent for higher rate taxpayers and 45 per cent for additional rate taxpayers.
He vowed to do it alongside measures to protect real entrepreneurs – with lower capital gains tax rates for those taking risks building companies – and long-term investment to boost economic growth.
The package would also close the loopholes he said people use to disguise income from work as capital gains, such as establishing personal service companies or taking pay in shares.
He claimed the plan could raise up to £12billion a year, pointing to calculations by the Centre for the Analysis of Taxation.
But the boss of one London hedge fund told the Daily Mail: ‘I was optimistic Wes Streeting might be OK but he’s clearly an idiot, too.
‘How do you sell a business if the stock market is broken?’
‘Why can’t these clowns understand that if you keep driving out the wealth creators there will be no one left to fund their mad socialist policies?’
Economist Rupert Harrison, an aide to George Osborne as Chancellor, said: ‘Every time a new Labour team gets into the Treasury and asks about this idea they will be told the data clearly shows it would actually result in lower tax revenues, and they won’t do it.
‘We are pretty much at the revenue maximising rates for capital gains tax. And this isn’t because of avoidance schemes, it’s mainly just that people would defer selling assets or possibly move overseas.’
Helen Miller, head of the IFS think-tank, said: ‘Simply raising rates would not raise big sums of revenue (it could easily lose money) and would reduce investment.’
Asked about Mr Streeting’s wealth tax plan, Chief Secretary to the Treasury Lucy Rigby told BBC Radio 4’s Today programme: ‘We already tax wealth in this country.
‘The Chancellor introduced a host of measures in her first budget, and then further measures in the last budget as well, that try and make sure that tax is as progressive and fair as possible.’
The MP’s intervention comes a day after he warned in his resignation speech that Labour must change course or risk handing Reform UK power, and after he quit the Cabinet last week calling on the Prime Minister to go.
The Treasury’s OBR watchdog forecast in March that the tax burden will reach a never-before seen mark of 38.5 per cent of GDP in 2030-31.
That was even higher than the 38.3 per cent envisaged before.
Big beasts are gearing up for a contest to replace Keir Starmer within months, whether or not Andy Burnham wins the Makerfield by-election on June 18
Rachel Reeves has already pushed the tax burden towards a record high, squeezing growth and investment
The watchdog has raised concerns the Government is relying on a small base of better-off taxpayers for the bulk of revenues, while the ‘stealth raid’ of freezing earnings thresholds is very sensitive to changes in inflation and earnings.
The OBR’s historic database of Budget measures shows Ms Reeves has been ‘scored’ as adding £75.1billion a year to the tax burden since entering No11 in July 2024.
The staggering tally makes her the biggest tax-raising Chancellor in the last six decades, far ahead of her nearest competitor for the dubious distinction.
That was fellow Labour politician Gordon Brown, whose fiscal statements added up to an extra £62.1billion.
Rishi Sunak came in third with £54.9billion of tax rises announced, as he struggled to cope with the fallout from Covid and the Ukraine war. Norman Lamont’s increases in the 1990s were assessed as £41.7billion and George Osborne’s £41.6billion.
The OBR maintains figures for all the tax policies ‘scored’ at fiscal events since 1970, adjusted for GDP growth to the present day.
The numbers do not account for measures raising more or less than anticipated – and miss out some smaller changes up to the watchdog’s creation in 2010.
However, they give the best indication available of the size of packages announced by Chancellors.
