Labour wealth tax war rages amid claims Reeves will reject calls for charge on assets – but could hit pensions reliefs instead

Labour’s wealth tax war is raging amid claims Rachel Reeves is set to reject demands for a charge on assets – but could hit pension reliefs instead.

The Chancellor is desperately hunting for options as she faces an estimated £30billion black hole in the public finances at the Autumn Budget.

She has been carefully avoiding ruling out a ‘wealth tax’ – with backbenchers pushing for 2 per cent levy on assets worth more than £10million.

However, she is thought to be privately opposed to the move, with tax experts and Cabinet ministers warning it would only drive away more wealth people from Britain.

A raid on pensions is still said to be on the table, with fears that the Treasury is again looking at slashing reliefs.

Currently higher-rate earners are spared 40 per cent tax on money that is put into retirement funds.

However, reducing the relief to the 20 per cent basic rate could raise around £15billion for the government. 

The idea was rejected at the Budget last year, but Ms Reeves’ situation has dramatically worsened. 

Chancellor Rachel Reeves is desperately hunting for options as she faces an estimated £30billion black hole in the public finances at the Autumn Budget 

The CPI inflation rate had been expected to stay on hold at 3.4 per cent in the year to June, but instead increased to 3.6 per cent

Recent figures showed the economy shrinking for a second month in a row

It would cause an outcry as cash in pension pots is already taxed when people draw incomes. The government is also facing mounting alarm that Brits are not saving enough into their pensions for comfortable retirement.

She is widely expected to extend the long-running freeze on tax thresholds to bring in billions of pounds more. 

Capital gains could also be raided, as the Chancellor insists she will not hike rates of income tax, employee national insurance or VAT. She has also vowed a ‘cast-iron’ commitment to fiscal rules, with the UK’s debt mounting at risk of spiralling out of control.    

A senior government source told The Times that a wealth tax on assets was ‘not going to happen’. 

‘The problem is that if the Treasury start shooting down Kinnock’s proposal, they end up being boxed in,’ the source said. 

‘It’s not going to happen, but they can’t say that publicly.’ 

The government’s woes have been deepening with inflation unexpectedly rising and signs the economy is slowing down.

Experts have warned that the stalling economy together with spending pressures could mean the Chancellor has a £31billion funding gap.

The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed a £41billion increase – the biggest on record for a single package. 

Many believe the Chancellor will opt to extend the long-running freeze on tax thresholds.

The policy, in place since 2022, is due to end in 2028-29. By that point it will have dragged an extra 4.2million people into the tax system as wages rise.