Labour is now flirting with the idea of a wealth tax. Reports over the weekend suggest that the Cabinet is considering a windfall tax on the richest people in Britain. It is a seductive idea for the Left; one of the few ways a government can raise funds for public services without harming average workers. Yet it is proving a tricky proposition for Keir Starmer as he tries to maintain his rickety electoral coalition.

The Government’s approach to a wealth tax has lacked the enthusiasm that many Labour supporters have demanded. This is understandable. The advice from the Treasury about the levy, which charges a percentage of wealth over a certain level, will be pretty clear: it is extremely difficult to implement, and unlikely to raise much revenue. A wealth tax raises all sorts of practical issues, from questions about how business interests are valued to the risk of capital flight. In countries where it has been introduced, it has largely been confined to real estate and has raised far less money than predicted. The French version raised about £1.7 billion — barely anything in terms of government spending.

Populists on the Left are less burdened by these realities. Many are either convinced that a wealth tax can raise vast amounts of money with few ill effects; others simply don’t care. For them, the issue goes beyond fiscal practicality. It is about signaling and messaging — showing that you want to soak the rich, and that you don’t care if they take their money to other jurisdictions. The Labour Party, burdened with having to try to make this work, can’t afford to be as gung-ho.

Starmer and Chancellor Rachel Reeves are stuck with a harder reality. From a Treasury point of view, the best way to raise money is broad-based tax increases, aimed at median and higher earners. These generate the biggest sums and are easiest to implement. They are also politically very difficult. People want more spending but don’t want to pay for it themselves. Ideas like a wealth tax, which avoid this dilemma, have obvious popularity.

Labour’s challengers on the Left know this, too. As they seek to take votes away from the struggling Government, a wealth tax is an eye-catching idea that will win them attention and support. A number of Left-wing campaign groups have pushed the policy for a while. The Greens have embraced the idea, as have many Left-leaning independents. If a new Corbynite party does come together, it is likely to echo these calls. Labour’s weakness on this could open the door for a party on the Left to do what Reform UK is going to do to the Tories: namely, pressure manifesto changes, steal votes, and deprive the larger party of a majority.

Yet a wealth tax is likely to fail on its merits. When it does, tax rises will be needed elsewhere to stave off further cuts. Doing so risks taxing ordinary workers and losing the working-class vote en masse.

In the last few years of power, the Conservatives struggled to find simple solutions that would alleviate the country’s worst problems and win the trust of voters. When it comes to a prospective wealth tax, Labour faces the same problem. Even if Starmer makes concessions to the idea, it won’t solve the party’s broader issues — both fiscal and electoral.

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John Oxley is a corporate strategist and political commentator. His Substack is Joxley Writes.

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