Rachel Reeves raised fears of a painful tax raid on Middle England as she suggested those with the ‘broadest shoulders’ would have to pay billions more.
As official figures showed the economy flatlined over the summer, the Chancellor laid the ground for a Budget that will target the better-off.
Her comments, on the fringes of the International Monetary Fund‘s annual meetings in Washington, prompted a warning that property, pensions and savings could be targeted.
While the Chancellor has ruled out a specific wealth tax, her remarks appeared to signal that she is looking to grab assets in other ways. That will intensify speculation that inheritance tax, retirement schemes or landlords could be hit.
Ms Reeves said: ‘I do think that those with the broadest shoulders should pay their fair share of tax, and I think you can see that through my actions last year at the Budget.’
It was a clear signal that after a £40billion tax-raising Budget last year, the Chancellor is preparing to break her promise soon afterwards that she would not be ‘coming back with more’.
And Ms Reeves indicated her judgment on who to target would be based on their assets – which might mean homes or savings – rather than wages.
Asked how she defined a wealthy person, she said: ‘Wealth is obviously different from income. So wealth is not about your annual salary.’
She drew a distinction between specific wealth taxes, which are ruled out, and those that ‘do tax wealth and do tax wealthy people’ some of which were increased by Labour in 2024.
While the Chancellor has ruled out a specific wealth tax, her remarks appeared to signal that she is looking to grab assets in other ways which will intensify speculation that inheritance tax, retirement schemes or landlords could be hit
They included the imposition of VAT on private school fees, abolishing non-dom status and extending taxes on private jets.
Asked where she might raise taxes, the Chancellor said: ‘Judge me on my record last year.’
Ms Reeves will need to raise taxes and cut spending by enough to fill a financial black hole of tens of billions of pounds to meet her Budget rules.
And she indicated she would like to give herself a greater margin of error against those targets – requiring even more pain.
‘More headroom requires more tax revenue or less spending on public services like the NHS,’ Ms Reeves said. ‘So you’ve got to get the balance right there.’
The Institute of Fiscal Studies has suggested £42billion may need to be raised to provide enough headroom to spare the Chancellor from a ‘Groundhog Day’ repeat scenario.
Shadow chancellor Sir Mel Stride said: ‘Under Labour nothing is safe. Not your home, not your pension, not your savings.
‘Rachel Reeves should show some real backbone and control Government spending – that includes cutting the welfare bill – rather than shaking down the taxpayer again.’
It came as a new poll showed firms are preparing to axe jobs, raise prices and slash investment if tax rises are in the Budget. The survey from the Institute of Chartered Accountants in England and Wales said many had already taken similar action following last year’s tax raid.
The institute’s chief executive Alan Vallance said: ‘Britain faces a damaging cliff edge if the Chancellor decides to raid businesses again at next month’s Budget.
‘Business confidence is fragile, investment is stalling, and everyday decisions are slowed by complexity, cost and uncertainty.’
The economy grew by a meagre 0.1 per cent in August, having shrunk by 0.1 per cent in June – meaning the UK effectively stalled over the summer.
Experts fear speculation ahead of the Budget will dampen growth too.
Meanwhile, the boss of Whitbread, the owner of Premier Inn, yesterday cautioned the Chancellor against further ‘punitive’ tax increases for businesses.
Dominic Paul said Labour’s workers’ rights bill was making it harder to grow.
It comes as ministers are ‘running out of road’ and plotting a taxi tax grab, the Tories have warned.
Labour has refused to rule out slapping VAT on private hire fares, sparking speculation the Chancellor will clobber cabbies at the Budget.
The Tories warned such a move would hit people in rural areas and those with disabilities hardest, also harming the night-time economy.
Shadow transport secretary Richard Holden asked the Treasury what assessment had been made of applying 20 per cent VAT to private hire vehicle journeys on vulnerable users
Industry experts expect such a tax to raise £750million a year – by adding £2 to £3 to the cost of a typical £12 journey.
Shadow transport secretary Richard Holden asked the Treasury what assessment had been made of applying 20 per cent VAT to private hire vehicle journeys on vulnerable users.
Treasury Minister Dan Tomlinson replied: ‘The Government continues to take this complex issue very seriously and recognises businesses’ need for certainty.
The Government is carefully considering the wide range of views shared through last year’s consultation on the VAT treatment of private hire vehicles and will publish a detailed response soon.’
Mr Holden said the Government was refusing to rule it out ‘because they’re planning it’.
At present most taxi operators need not charge VAT as their drivers are self-employed and earn less than £90,000.
It came as the Reeves promised to help struggling households in the Budget, with measures to cut energy bills.
Rachel Reeves at the International Monetary Fund headquarters in Washington
The Chancellor said she was planning ‘targeted action to deal with cost of living challenges’ as she battles to reduce soaring inflation while balancing the books.
The BBC reported that one plan being look at is a cut in the VAT on fuel bills, which stands at five per cent.
It has been estimated that scrapping this would save households £86 a year, but cost the Treasury as much as £1.75billion.
Another option would be to lower some green levies added to energy bills, which cost families more than £200 a year.
That could prove too expensive as Ms Reeves scrambles to fill a £30billion black hole in the public finances.
In a round of interviews yesterday as she attended the annual meeting of the International Monetary Fund (IMF) in Washington, the Chancellor admitted inflation was ‘too high’.
Prices rose 3.8 per cent in the 12 months to August as food prices soared.
The IMF says inflation will be higher in the UK than in any other leading economy this year and next.
‘We do want to bear down on the costs people face, and are looking at a range of policies in the Budget to further that,’ Ms Reeves told reporters.
She said the Government ‘has a role’ in ‘areas of regulated prices’ such as energy bills, noting prescription charges and bus fares had been capped.
This week, Octopus, the UK’s biggest energy supplier warned that electricity prices would rise by 20 per cent within four or five years unless the Government changed course.
Households’ average annual bills rose to £1,755 this month as watchdog Ofgem raised the energy price cap by two per cent.