Rachel Reeves faces backlash as she pushes deep cuts, ignoring calls for a wealth tax to ease the pain

Rachel Reeves is set to deliver the harshest round of spending cuts in over a decade, warning Labour MPs that rejecting her plan could spark an economic crisis similar to Liz Truss’s disastrous 2022 mini-budget. In a desperate bid to maintain fiscal discipline, she is slashing billions from welfare, foreign aid, and public services—decisions that have triggered growing rebellion within her party.

With Labour MPs and ministers already furious over cuts to disability benefits and the redirection of aid to military spending, Reeves will defend her position at next week’s spring statement. She will argue that increased borrowing is too risky and could lead to another surge in government debt and market panic. Treasury officials insist that ordinary working people, not the wealthy, paid the price for Truss’s mistakes, and Reeves is determined to prevent a repeat.

But cracks are widening within Labour. Key figures including Ed Miliband, Angela Rayner, and Shabana Mahmood have expressed serious concerns. At a tense cabinet meeting, they highlighted Germany’s recent decision to loosen fiscal rules to allow more defence spending, pressing Reeves to reconsider her rigid approach.

Former education secretary David Blunkett has joined the calls for change, urging Reeves to raise her self-imposed borrowing limit by £10–£15 billion. He wants to see funds directed towards job creation and training, reminiscent of Labour’s 1997 New Deal programme. His intervention adds to the pressure on the chancellor, who is already facing discontent from Labour’s left wing.

The economic picture is growing bleaker. On Friday, the Office for National Statistics revealed that government borrowing last month reached £10.7 billion—far exceeding economists’ forecasts of £6.6 billion. This mounting debt has only intensified criticism of Reeves’s refusal to reconsider her strict fiscal rules, which require debt to fall as a percentage of GDP and the day-to-day budget to be balanced by 2029-30.

Despite the uproar, Treasury insiders dismiss any possibility of relaxing these constraints. Reeves’s team argues that Labour won the last election by proving it could be trusted with the economy, and any deviation now would destroy that credibility. She has also flatly rejected calls for a wealth tax, insisting that the rich would simply move their assets offshore, making it ineffective.

“Even if we introduced a wealth tax, it wouldn’t raise enough,” said one Treasury source. “Ed Miliband’s mansion tax was only expected to generate £700m–£1.5bn. That won’t solve our problems.”

To counter criticism, Reeves will ramp up tax collection efforts. She plans to invest £180 million into HMRC, hiring 1,100 new compliance officers and private debt collectors. This crackdown on tax avoidance is expected to raise £1 billion by 2029-30. Meanwhile, harsher penalties for late taxpayers will take effect next month, with fines jumping from 2% to 3% after 15 days and soaring to 10% for payments over a month overdue.

But many in Labour fear Reeves is on a dangerous path. By refusing to relax spending rules or tax the wealthy, they warn she risks repeating the mistakes of past austerity governments—just under a different name.