Rachel Reeves has been warned that a wealth tax would make her situation even worse as Labour’s Left demands more spending.
The prospect of a charge on the assets of the well-off has been mooted as the Chancellor scrambles to fill a potential £30billion black hole in the public finances.
Lord Kinnock, who led Labour between 1983 and 1992, fueled speculation yesterday by suggesting ministers were looking at a two per cent levy on assets worth more than £10million.
He said the move could raise up to £11billion a year and be popular with a ‘great majority of the general public’.
Left-wingers and unions have lined up behind the idea, as they knock back tentative efforts to curb spiralling benefits costs.
However, the Tories warned that there was already an alarming exodus of wealth-creators from Britain thanks to Labour’s policies – saying the only people who would suffer from the raid would be the least well-off.
Ms Reeves seems to be backed into a corner as she is adamant about sticking to her strict fiscal rules on borrowing.
She has also said Labour will keep the manifesto pledge not to hike taxes on income tax, employee national insurance or VAT.
But experts have suggested that the stalling economy together with spending pressures could mean she has a £31billion funding gap to fill at the Autumn Budget.
The respected IFS has warned the tax increases might even need to be on a similar scale to the record £41billion hike in the burden imposed last year.
Ms Reeves previously said she was ‘not interested in a wealth tax’, and Downing Street stressed today that the government had already taken steps to make sure those with ‘broadest shoulders’ pay the most.
But the PM’s spokesman stopped short of completely ruling the step out, arguing that announcements would only come at the Budget.
Speaking to Sky News yesterday, Lord Kinnock said there was now an appearance the Government was being ‘bogged down by their own imposed limitations’.
But he added there are ‘ways around that’, such as the introduction of a wealth tax when Ms Reeves presents her next Budget in the Autumn.
‘There are ways around that, ways out of it, pathways that I think people are willing to explore and actually, would commend themselves to the great majority of the general public,’ the peer said.
‘They include, for instance, asset taxes in a period in which – for the last 20-odd years in the UK, like quite a lot of other Western economies – earned incomes have stagnated in real terms while asset values have zoomed.
‘They’ve just gone through the roof.’
He added: ‘You wouldn’t have to touch assets of under £6million or £7million. So people’s houses would be secure obviously.
‘But even by going for an imposition of 2 per cent on asset values above £10million, say, which is very big fortune, the Government would be in a position to collect £10billion or £11 billion a year.
But Tory shadow chancellor Sir Mel Stride condemned a tax on assets over £10million as ‘the worst thing to do’.
He said Labour’s tax hikes had already seen around 10,000 to 15,000 high net worth individuals leave Britain.
‘Some people, the socialists, might say ‘well, who cares about that?’, he added.
‘Well, the problem is that the amount of tax that those people have been paying requires about a third of a million people on average earnings to cover that lost tax that’s just gone straight out of the door.
‘So the last thing we want to be doing now is piling further taxes on the wealth creators.
‘We need to be, if anything, getting those taxes down, and empowering them to go out and do what they do best, which is creating jobs, and, you know, creating wealth and prosperity for our country.’
