Chancellor Rachel Reeves is preparing to remove the two-child benefit cap and introduce a series of wealth taxes in her upcoming Budget, as the Labour leadership attempts to calm internal tensions and buy time amid growing speculation about a potential challenge to Keir Starmer.
Senior Labour MPs and party sources have told The Independent that the chancellor is set to bow to escalating pressure from within the parliamentary Labour Party and deliver a Budget that moves decisively to the left.
The plans, which are still being finalised, are expected to include a mansion tax on properties valued above £2 million, a levy on bank profits, and a profits tax on gambling firms proposed by former prime minister Gordon Brown.
Speculation is also mounting over possible changes to fuel duty and new taxation on electric vehicles. When pressed on the matter during interviews with Sir Trevor Phillips and Laura Kuenssberg, transport secretary Heidi Alexander declined to rule out an increase in fuel duty, stating only: “You would not expect me to speculate on what is going to be contained in the budget next week.”
According to party insiders, the Budget remains fluid until the final hours.
One minister said: “The ink definitely won’t dry on this budget until Tuesday night but it looks like the PLP is getting what it wants…wealth taxes and an end to the child benefit cap.”
The stakes are unusually high for the prime minister and the chancellor, with the Budget becoming entangled in mounting speculation over Labour’s leadership. Reports of a Downing Street briefing accusing health secretary Wes Streeting of plotting to replace Starmer have fuelled fresh rumours, with Angela Rayner, Ed Miliband, and Shabana Mahmood also cited in recent discussions about potential successors.
A senior party source said: “The PM and chancellor are buying themselves time. There will be elements of the media who hate these taxes but it will please members and the PLP.”
The decision not to raise income tax—despite previous plans—also came after significant pressure from Labour backbenchers. One MP warned that breaking the manifesto pledge would have destroyed trust among voters: “People would have just said ‘you lied, we can never trust you again.’”
New deputy leader Lucy Powell, elected on a platform critical of the Starmer leadership, has reportedly been echoing concerns raised across the PLP. While opposing income tax rises, she has voiced strong support for building “a fair tax system”, including wealth-focused measures.
Following a major benefits rebellion earlier in the autumn, Reeves and Starmer were forced to abandon plans for welfare cuts worth £5 billion. There are also concerns that the government’s tougher stance on asylum and human rights will need to be balanced by more left-leaning economic policies to retain party support.
One Labour MP commented: “There is a lot of unhappiness about us copying Reform with the asylum announcements this week so they seem to be in a place where they have to listen to us on the economy.”
A proposed bank levy, strongly advocated by the Trades Union Congress, could generate around £30bn by 2029 if applied at 16 per cent. Scrapping the two-child benefit cap is forecast to cost approximately £3.5bn a year. The mansion tax, previously suggested as a 1 per cent levy on £2m-plus properties, may be significantly softened—potentially capped at around £5,000—to avoid destabilising the London housing market.
A new gambling levy could bring in up to £3.2bn annually, with campaigners including Gordon Brown arguing the revenue could fully fund the removal of restrictions on child benefit.
The Treasury has argued that abandoning plans for an income tax rise was made possible by more optimistic assessments from the Office for Budget Responsibility, which revised its estimate of the Budget shortfall down to around £20bn, far below the earlier £40bn projection. However, Reeves still requires a larger fiscal buffer than the £10bn she set aside last year in light of global risks—including Donald Trump’s tariffs, market instability, and geopolitical conflict.
The chancellor must also find funding to meet the government’s target of raising defence spending to 2.5 per cent of GDP. Economists have warned that sustainably meeting these commitments would require increases to major taxes such as income tax, VAT, or national insurance, but Reeves is expected to disregard this advice in favour of wealth-based measures.
She has already defended the abolition of non-dom status and the imposition of VAT on private school fees, insisting both have generated more revenue than expected despite significant criticism. Opponents, however, argue that an expanding patchwork of wealth taxes risks destabilising the UK’s tax framework and deterring high-net-worth individuals.
