by Jonathan Eida, researcher
Rachel Reeves is in a self-inflicted financial predicament - squeezed from all sides.
On one side, there’s the Labour mantra. Supporters and MPs didn’t vote for a Labour government to tighten the screws on disability benefits or hike taxes on “working people.” They want rising living standards, not cuts to the welfare system.
Yet with taxes already set to hit a record high next year, according to the OBR, Reeves has little political space to go after the big revenue-raisers like income tax or employee national insurance, especially after Labour’s election promises.
On the other side, the fiscal rules loom. The Office for Budget Responsibility’s desires boil down to this: keep things financially sustainable. That means she must either grow the economy, raise taxes, or cut spending. Right now, she's scrambling for a bit of each.
So far, Reeves has stuck to tinkering around the edges. She’s hiked niche taxes rather than grabbing targeting major tax reform. Agricultural and business inheritance reliefs? Slashed. Capital gains tax? Increased - with the lower rate rising from 10 per cent to 18 per cent and the higher from 20 per cent to 24 per cent. The additional homes stamp duty surcharge is going up from 3 per cent to 5 per cent. And from April 2026, non-doms will face a new residence-based tax system. VAT on private school fees and the scrapping of business rates relief for those schools are also on the table.
Meanwhile, to make her numbers add up, she’s pencilled in £14 billion in cuts, including controversial changes to disability benefits.
On growth, Reeves is pinning her hopes on investment and housing deregulation to bring growth. There are also attempts to energise the financial sector by reigning in the regulators. But will it be enough?
The reality is, the UK probably won’t meet its fiscal targets. Data from the Resolution Foundation shows that while the OBR remains hopeful, external forecasters expect much slower growth, in large part thanks to the OBR excluding major negative factors such as the Employee Rights Bill and the impact of US tariffs. The gap is worrying.
This leaves Rachel Reeves in a real pickle. So, what’s the solution?
At a post-statement Treasury Committee grilling, Reeves was asked whether the government would consider a wealth tax.
As the TaxPayers’ Alliance’s research shows, wealth taxes are a proven failure. In the UK, the last serious attempt in the 1970s was dropped due to fears of capital flight. Globally, they’ve triggered tax revolts in the US, led to electoral wipeouts in Ireland and France, and been scrapped entirely in Sweden, Australia, and the Netherlands.
Even when introduced, wealth taxes raise little money - usually less than 1 per cent of GDP - while dragging the economy down. They distort investment, reduce entrepreneurship and pile on massive compliance costs. The UK, with its mobile wealth and globally mobile professionals, is especially vulnerable. And it’s not like wealth inequality is spiralling - it's largely age-based, peaking among 55-64 year-olds.
If inequality is the concern, there are better tools available. Liberalising planning laws and avoiding long periods of ultra-low interest rates would be more effective - and fairer. It is certainly better than hammering small business owners and farmers.
But Reeves gave a curious response - she claimed her budget tax changes were already targeting the wealthy.
This is the wrong outlook - and it reflects an attitude that risks holding Britain back.
Because the real victims of these tax hikes aren’t the wealthy in any meaningful sense. They're the middle class. Families trying to build financial security. People who’ve worked hard, saved, and want to pass something on. Reeves isn’t just taxing wealth, she’s taxing aspiration.
If the UK wants growth, it has to reward ambition. That means a tax system that encourages success, not one that punishes those trying to get ahead. Rachel Reeves must drop the class war rhetoric and embrace policies that unleash, not undermine, economic potential.