Neil Kinnock: Labour should bring in ‘wealth tax' to balance books
In a provocative intervention that will appeal to sections of the party's backbenchers, Kinnock said taxing the highest earners in the country would be popular with the 'great majority of the general public' and help Rachel Reeves fill her budget shortfall.
He suggested that the tax could be levied on assets of more than £10 million and raise as much as £11 billion for the Treasury.
He warned that the chancellor had become boxed in by her own words that ruled out further borrowing to cover day-to-day spending or raising income tax, national insurance or VAT.
• Is reform of the welfare system still possible?
'Unless you are looking for other original sources of revenue in order to invest in public services and long term investment, then you are really jammed into a bit of a corner,' he told Sky News.
However, Kinnock said that there were other 'pathways' to raise money that some within Labour were 'willing to explore' and that would 'commend themselves to the great majority of the general public'.
He said: 'They include asset taxes in a period in which for the last 20 odd years in the United Kingdom, like quite a lot of other western economies, earned incomes have stagnated in real terms while asset values have zoomed.
'Even by going for, an imposition of two per cent (tax) on asset values above £10 million, say, which is very big fortune. The government would be in a position to collect £10 or £11 billion a year.'
There are calls from the left of the party for Reeves to consider increasing taxes on wealth to pay for higher spending.
Louise Haigh, the former transport secretary who quit the cabinet last year, has said that the tax system 'punishes earned income but barely touches the sides of the real driver of inequality — wealth'.
Rachael Maskell, who was one of the leaders of the backbench Labour rebellion which forced the government to drop its welfare reform suggested that as much as £24 billion a year could be raised by equalising capital gains tax — and through income tax.
Before the election, Reeves said that the government had 'no plans for a wealth tax'.
• Keir Starmer's Labour as chaotic as Tories, voters say
Bridget Phillipson, the education secretary, warned on Sunday that the climbdown on welfare reform would impact other areas of government tax and spending.
Downing Street sources told The Sunday Times plans to shelve the two-child benefit cap were 'dead in the water' while the likelihood of tax rises has increased.
When asked if there was now less chance of the cap being scrapped given the costs that come with Tuesday's decision, Ms Phillipson told the BBC that ministers were 'looking at every lever and we'll continue to look at every lever to lift children out of poverty'.
But she added: 'The decisions that have been taken in the last week do make future decisions harder.'
Reeves is looking at a number of potential tax-raising measures ahead of the budget, including a further freeze to income tax thresholds that would increase the number of people paying the higher rate of tax.
The Institute for Fiscal Studies (IFS) said that Reeves may need as much as £30 billion to cover the cost of reversals on welfare reform and winter fuel payments coupled with downgrades to economic growth forecasts.
But the Treasury is likely to be reluctant to look at wealth taxes as it is feared this could increase the flight of the super-rich from the UK, damaging investment and growth. Reeves is already considering softening changes to inheritance tax that affect wealthy non-doms.
Sir Mel Stride, the shadow chancellor, said a new wealth tax would be the 'worst thing to do'.
He said: 'We've also seen around 10,000 to 15,000 high net worth individuals leave our country as a result of this government's policies. Now, some people, the socialists, might say, 'Well, who cares about that?' 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.'
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