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Deputy prime minister Angela Rayner wrote to chancellor Rachel Reeves shortly before the Spring Statement to make the case for big tax increases, in a sign of deep splits at the top of the government over economic policy.
Rayner proposed eight potential tax rises, including reinstating the pensions lifetime allowance and a higher corporation tax rate for banks in a memorandum to Reeves.
The measures would raise £3bn to £4bn a year, according to estimates cited in the document, which was sent two weeks before the Spring Statement on March 26.
Reeves appears to have ignored Rayner’s suggestions, because the chancellor used the statement to outline cuts to public spending rather than tax rises in order to comply with her fiscal rules.
However, Reeves is expected to consider tax increases ahead of the autumn Budget as public finances have deteriorated.
Rayner’s memo to Reeves — obtained by the Daily Telegraph — proposed restoring the £1mn pensions lifetime allowance and raising corporation tax on banks from 28 per cent to 30 per cent.
The memo also suggested ending inheritance tax relief on shares for the Alternative Investment Market, scrapping the £500 tax-free allowance for dividends, and increasing the tax rates paid on dividends by the wealthy.
Other proposals included freezing the threshold at which the 45p additional rate of income tax takes effect, and increasing taxes in two ways on people who use companies to trade housing without paying stamp duty.
Rayner’s memo, labelled “alternative proposals for raising revenue”, said the measures would not break Labour’s 2024 election manifesto promise not to raise taxes “on working people”.
Her document is likely to be seen as an attempt by the deputy prime minister to pitch herself as a standard bearer for the dwindling number of leftwing ministers in Sir Keir Starmer’s cabinet.
The prime minister has increasingly surrounded himself with more centrist “Blairite” ministers and advisers.
Rayner’s memo also highlights jitters among some ministers and Labour MPs about the chancellor’s efforts to pare back spending.
Many Labour MPs are uncomfortable with Reeves’ cut to the overseas aid budget and attempts to curb welfare spending through measures such as tighter eligibility tests for personal independence payments.
Rayner’s memo was sent around the time that the Financial Times revealed that she was among several ministers raising concerns during a March cabinet meeting about cuts expected in the summer spending review.
Some ministers questioned during that meeting whether taxes could be increased as an alternative to spending cuts.
Tax rises would be controversial given that Reeves used last October’s Budget to lift the tax haul by £40bn a year, including through a big increase in employers’ national insurance contributions.
Mel Stride, Conservative shadow chancellor, said Labour’s most senior ministers were debating which taxes to raise next.
“The chancellor has repeatedly refused to rule out another tax raid in the autumn, and now we know why — Labour’s top brass, including the deputy prime minister, want to come back for more,” he added.
Neither Reeves’ nor Rayner’s spokespeople commented on the memo, but one government aide said it was not unusual for discussion papers to be commissioned and exchanged on an informal basis.
Another aide said Rayner’s document should not be seen as an endorsement of any particular proposals.
“We don’t comment on leaks,” said a government spokesperson.
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