Calls for One Off Wealth Tax as Budget Shortfall Looms Over Labour

Chancellor Rachel Reeves is facing mounting pressure to introduce a one-off wealth tax as she seeks to address a significant black hole in the government’s finances while upholding Labour’s manifesto pledges. With the freshly received forecast from the Office for Budget Responsibility indicating a £20 billion to £30 billion deficit, leading economists and the Institute for Fiscal Studies have put forward recommendations intended to close the gap without resorting to the politically sensitive route of raising income tax, national insurance or VAT.

The think tank’s analysis suggests that a windfall tax on existing wealth could prove an effective and economically efficient means of raising the much-needed revenue. This approach is favoured over instituting an annual wealth tax, which critics fear could deter saving and prompt high-net-worth individuals to leave the United Kingdom. Economists warn that recurring levies face significant obstacles and are unlikely to yield the projected sums due to these practical challenges.

Reeves’ options remain limited, but tax revenue is already poised to climb to a record high as a share of national income, reaching an anticipated 37.4 per cent in the coming years. Conventional increases to the main tax rates have been ruled out, so the focus has shifted to more targeted and possibly one-off measures. The IFS advocates for tax reforms that could help eliminate inefficiencies and address perceived unfairness within the current system, specifically calling for an overhaul of property taxes such as council tax and stamp duty.

Among the considered options is removing capital gains tax relief on death, which would raise around £2.3 billion by 2029 to 2030. Adjustments to death duties, including scrapping the additional £175,000 tax-free allowance on primary residences inherited by direct descendants, could yield approximately £6 billion. The banking sector is not immune, with proposals to increase the bank levy and bank surcharge expected to generate an extra £2.4 billion in the next financial year.

Alongside the tax debate, cabinet members continue to argue for the abolition of the two-child benefit cap, a policy widely criticised for increasing child poverty rates. The education secretary has been vocal about making this a priority, signalling the issue may come to a head in the forthcoming budget negotiations.

Experts caution that any abrupt revenue-raising measures risk dampening economic growth. However, by addressing inefficiencies and modernising the tax framework, Reeves is presented with a unique opportunity to enact changes that could promote prosperity and wellbeing for British taxpayers while weathering the ongoing fiscal challenges.