Ignacia Punto asks to tax or not to tax the rich? Will Labour meet the challenge in the Autumn Budget
It has now been over a year since the Labour government came to power—a year marked by both highs and lows. Despite promises to revive the economy, the outlook remains strained: inflation has proved stubborn, interest rates remain higher than most households can bear, and the labour market is cooling, with unemployment creeping up. Against this backdrop, Rachel Reeves faces an uphill task as she prepares the Autumn Budget. The Chancellor is expected to need several extra billions to meet her own fiscal rules, particularly since borrowing has exceeded forecasts. But the key question remains: where will those resources come from?
With fiscal rules repeatedly described as “non-negotiable” (despite being defined by the Chancellor herself and therefore changeable in theory), the Government is effectively left with two options: raising taxes or cutting spending.
We have already seen an attempt at the latter earlier this year, when the government proposed cuts to disability benefits and made what seemed like last-minute tweaks in a bid to “balance the books”. That move was both politically and morally indefensible: asking Disabled people to shoulder the burden of fiscal adjustment should never have been an option for a government that calls itself progressive. Opposition from MPs, combined with strong campaigning—including work by the Women’s Budget Group alongside disability organisations—forced the Chancellor into a partial U-turn. Evidence showed that such cuts would have hit women hardest: Disabled women, who make up the majority of Disabled people, and women in general, who are often left to absorb the shortfall in care through unpaid work. If the Government wants to avoid another crisis of this nature, it must turn to tax reform instead.
Labour’s manifesto pledge not to raise taxes on “working people” is looking increasingly unsustainable. The Government should be willing to revisit this promise, while also exploring ways to generate revenue without squeezing ordinary households. And there’s no shortage in options: aligning capital gains tax with income tax, a step that was partially taken in the last budget, would mean that income from wealth is taxed at the same rate as income from employment. Another measure would be a 2% wealth tax on the extremely rich, estimated to raise up to £24 billion annually. A windfall tax on banks’ profits could raise an additional £11 billion. In recent years, banks have posted record profits, boosted by the Bank of England’s higher interest rate payments, which are ultimately borne by taxpayers.
These reforms should not only plug today’s budgetary gaps but also create room to deliver policies that have been promised by Labour—none more so than the abolition of the two-child limit.
The evidence against the two-child limit is overwhelming. It is now the single biggest driver of child poverty in the UK, affecting over 1.6 million children—one in nine—according to the Department for Work and Pensions. The policy not only pushes families deeper into poverty but also entrenches gender inequality. Around two-fifths of families affected say that it prevents them from affording childcare, locking parents—particularly mothers—out of paid employment. Forty-four per cent of those affected are single-parent families, the vast majority of them led by women.
This is a vicious cycle: the policy traps women and children in poverty while reinforcing structural disadvantage. The economic case against it is just as strong. Research by the Child Poverty Action Group (2023) found that child poverty costs the UK nearly £40 billion a year—half in lost future earnings and tax revenues, and half in increased demand on public services. Removing the two-child limit is estimated to lift 470,000 children out of poverty at a cost of £3.5 billion, reducing the losses from child poverty. Far from saving money, the two-child limit is a false economy.
While both the Prime Minister and Chancellor hinted at lifting the policy at last month’s Party Conference, neither has confirmed it, with rumours about tweaks rather than abolition making headlines. Yet, over the past year, the Government’s Child Poverty Task Force has met with numerous organisations and experts, including the Women’s Budget Group, many of whom have stressed that half measures—like swapping the two-child limit for a three-child limit—won’t fix the problem. Only full abolition can ensure that the children most at risk of poverty won’t be left behind.
A year after its first Autumn Budget, it’s high time for Labour to show it’s serious about delivering real change. Its fiscal strategy must go beyond arbitrary rules. The priority should be to properly fund our public services – the NHS, local governments, childcare and education – and strengthen social security. Doing so would reduce poverty, boost living standards and tackle gender inequality – all of which would strengthen our economy. This requires bold choices on taxation, making sure those with the broadest shoulders contribute their fair share, and the political courage to end policies like the two-child limit that punish children and deepen inequality. Labour’s Autumn Budget is not just about numbers on a spreadsheet—it is about delivering change that improves people’s lives. The question is whether the Government will rise to the challenge.