Wealth taxes and rent controls: what backbenchers want next

Telegraph

6 days ago

Days after Sir Keir Starmer was reported to be ready to block a wealth tax, pressure has mounted from Labour's union paymasters to bring in a such a levy. Lord Kinnock said the party was 'willing to explore' it.
It is the latest humiliating signal that the Prime Minister has lost control of the Cabinet after his hand was forced on welfare. Sir Keir had to offer 11th hour concessions just 90 minutes before the vote last week, meaning his flagship legislation will no longer save £5bn.
The backbenchers now know the power they wield. Alongside a wealth tax, they are eyeing up policies including scrapping the two-child benefit cap and introducing rent controls.
Mike Warburton, The Telegraph's tax expert, said: 'The Government is unfortunately in a financial hole of its own making. It has become clear that the ministers are in hock to their backbenchers in attempting to make any meaningful cuts in spending. Tax rises are now inevitable.'
Telegraph Money outlines the potential targets:
Wealth tax
A wealth tax has long been coveted by certain members of the Labour party. It is applied to the total value of an individual's assets, such as property, investments and savings.
Rachael Maskell, MP for York Central who led the backbench rebellion on welfare, said the Government should 'scope out' how a wealth tax would work.
'We need to make the case that paying tax is good,' she added.
Experts are anticipating tax increases to hit the highest earners.
William Stevens, head of wealth management at Killik & Co, said: '[The Government] remains plagued by exceptionally limited fiscal headroom – put simply, the Government needs to raise money, and it's running out of avenues.
'Tax is ultimately the way to do that – both on the surface and by stealth.'
Andy McDonald, MP for Middlesbrough and Thornaby East, was one of the 49 MPs who still voted against the welfare Bill last week. He told The Telegraph: 'I've made a case for the last six months for wealth taxes. I'll continue to do so in the next six months because it's right.'
He has proposed a 2pc tax on assets of more than £10m, which is an idea being pushed by the Patriotic Millionaires UK.
'It is the broadest shoulders argument. 'Distributed to each according to his need.' That's not Marx, it's the Bible,' Mr McDonald said.
Labour has pledged not to raise taxes for 'working people', and promised not to increase VAT, income tax or National Insurance in its manifesto.
Freezing tax thresholds for additional rate taxpayers
In May, Angela Rayner sent a memo to Rachel Reeves with 10 proposals for raising revenue. One of the suggestions in the leaked note was freezing the additional rate income tax threshold.
The memo said: 'Continuing to freeze the additional rate threshold in case terms rather than uprating it with inflation from April 2028 could raise revenue and would be consistent with the manifesto.'
The additional rate of income tax, 45pc, applies to income above £125,140.
Ms Reeves has already refused to 'stand by the commitment' to end a freeze on income tax thresholds from 2028.
She failed to rule out imposing a stealth tax on workers in October, instead referencing the '£22bn black hole in the public finances'. It means millions more households could be dragged into higher tax brackets.
Stretching out the freeze on tax thresholds would also result in more retirees paying tax on the state pension.
And while the Chancellor last year said she is 'not coming back with more borrowing or more taxes,' she may be left with little choice.
After all, Ms Rayner was 'instrumental' in getting Sir Keir to gut his welfare Bill, The Telegraph understands, holding hours of crucial talks with Labour MPs.
It means Ms Reeves may also be forced to listen to Ms Rayner when it comes to the looming Budget.
Equalising capital gains tax
Ahead of the last Budget, there were fears that the Chancellor would uprate capital gains tax in line with income tax.
Instead, the rates rose from 10pc to 18pc for basic-rate taxpayers, and from 20pc to 24pc for higher-rate taxpayers.
But the idea has gained traction again, with Mr McDonald suggesting it would be a viable way of balancing the books.
Ms Maskell also told the BBC Radio 4 Today programme last week that a wealth tax or equalising capital gains could raise £24bn.
Scrapping the two-child benefit cap
The next policy that MPs will set their sights on is scrapping the two-child benefit cap. The cap prevents parents from claiming Universal Credit or child tax credit for more than two children. It was introduced by the Conservative Party in 2017.
Speculation has been mounting that Labour will lift the cap after Nigel Farage, Reform UK's leader, called for it to be axed.
Ms Maskell told The Telegraph: 'We need more positive intervention in politics, and should be investing to save money.'
Last year, seven MPs had the whip suspended for six months after voting against the Government on an SNP amendment to reverse the cap.
John McDonnell, the former shadow chancellor, was joined by Richard Burgon, Ian Byrne, Rebecca Long-Bailey, Imran Hussain, Apsana Begum and Zarah Sultana in rebelling.
The End Child Poverty Coalition has found that reversing the cap would lift 250,000 children out of poverty.
Rent control
Landlords could be facing another blow under Labour if backbenchers call for further rent control.
Ms Maskell said a quarter of her constituency lives in private rentals.
She told The Telegraph: 'Rents are absolutely extortionate, and people are trapped in poverty. If we introduce caps on rent, the Government will also save money on the housing allowance.'
Yet the move could backfire on renters and landlords, as has been the case in Scotland.
In 2022, Nicola Sturgeon, former first minister, froze rent increases for six months before capping them at 3pc.
But the cost of a one-bedroom flat surged by more than 20pc after it was introduced, according to Scotland's largest estate agent DJ Alexander. This was because landlords could still raise rents between tenancies.
John Blackwood, of the Scottish Landlord Association, previously told The Telegraph that increased rent restrictions were the biggest concern.
He said: 'Historically, lots of landlords haven't increased rent mid-tenancy, and have used the void period between lets to carry out improvements and reset the rent to market value.
'Landlords are concerned that without this option to reset rents to market value between tenancies, their properties will become increasingly unviable as costs increase at a faster rate than they can raise rents.'
Landlords are already facing an increasingly hostile environment under Labour, after Ms Reeves increased stamp duty on buy-to-lets from 3pc to 5pc overnight in October.
The Renters' Rights Bill is set to end fixed-term tenancies, prevent action being taken against non-paying tenants for up to three months and ban bidding wars.
A third of landlords are now looking to sell off some or all of their rental properties, according to the latest English Private Landlord Survey.