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Deputy Prime Minister Angela Rayner’s memo reveals deepening cabinet divisions over Labour’s economic direction as public spending cuts loom.
In a move highlighting growing friction at the heart of the UK government, Deputy Prime Minister Angela Rayner has urged Chancellor Rachel Reeves to consider a suite of wealth tax reform proposals ultimately left on the shelf in favor of public spending restraint.
A leaked memo sent by Rayner to Reeves ahead of the March spring fiscal statement outlined eight potential revenue-raising measures, estimated to bring in £3bn to £4bn annually. The suggestions ranged from scrapping dividend tax allowances to reinstating the pension’s lifetime allowance, a reversal of a Conservative-era policy that former chancellor Jeremy Hunt abolished.
Although framed as a “discussion document,” the memo underscores a broader ideological rift within the Labour cabinet. On one side stands a group of center-left ministers, aligned with Prime Minister Keir Starmer and Reeves, committed to fiscal caution and avoiding tax hikes on “working people.” Conversely, figures like Rayner appear increasingly concerned that tightening the purse strings without exploring new revenue sources may hinder the government’s social agenda.
Rayner’s Red Lines
Among the proposed measures were a freeze on the threshold for the 45p additional income tax rate, ending inheritance tax relief on AIM-listed shares, and increasing the dividend tax rate for high earners. Rayner also aimed at property investors using corporate structures to circumvent stamp duty obligations.
Significantly, the memo argued that none of the proposals would breach Labour’s 2024 manifesto pledge to avoid tax increases on ordinary working households, an argument intended to insulate the party from claims of broken promises.
Yet Reeves, adhering to self-imposed fiscal rules designed to reassure markets and voters alike, rejected the recommendations. Instead, her March statement maintained Labour’s current course: restrained borrowing and real-term cuts to departmental budgets.
Internal Dissent Surfaces
Cabinet insiders report that Rayner was not alone in raising concerns. During March’s cabinet meetings, Ministers voiced unease about whether revenue alternatives had been fully considered, especially with a summer spending review expected to require politically sensitive trade-offs.
Rayner’s intervention will likely resonate with backbenchers and trade unions dismayed by reports of cuts to overseas aid and new restrictions on personal independence payments. The latter, in particular, has drawn criticism from MPs on the left of the party, who view Reeves’s approach as too orthodox for a government elected on a platform of change.
Political Calculus and Autumn’s Horizon
The political implications of the leak are already reverberating. Mel Stride, the Conservative shadow chancellor, seized on the memo as proof that Labour is preparing for “another tax raid” in the autumn. While Reeves has publicly avoided committing to tax increases, pressure is mounting both inside and outside government to reassess that position as public finance forecasts worsen.
Government spokespeople declined to comment on the memo directly. At the same time, Environment Secretary Steve Reed downplayed the division, insisting the cabinet remained united and highlighting recent reforms to the non-dom tax status as evidence the government is already ensuring the wealthiest contribute more.
A Strategic Gamble
The unfolding tension poses a critical test for Labour’s economic leadership. Reeves’s caution is designed to contrast with the Conservative-era fiscal instability that marked the premierships of Boris Johnson and Liz Truss. However, critics argue that political capital earned through a substantial electoral mandate risks being squandered if the government fails to pursue bolder redistributive reforms.
With the autumn budget fast approaching, the chancellor may be forced to revisit some of the ideas she rejected in March. Whether this represents a pragmatic recalibration or a reluctant concession to internal dissent remains to be seen.
For now, Rayner’s memo signals a clash over policy and a deeper contest over Labour’s identity in power.
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