Keir Starmer and Rachel Reeves are set to tack hard to the left in the budget to buy themselves time and prevent an attempted leadership coup by backbenchers.
The Independent has been told that the chancellor will bow to pressure scrapping the two child benefit cap altogether and unveiling a series of wealth taxes to fill the spending black hole in her budget.
Backbenchers and senior party members have been assured that the tax raid will include a mansion tax on properties worth more than £2 million, a profits tax on gambling companies demanded by former PM Gordon Brown, and a levy on bank profits.
Added to that transport secretary Heidi Alexander refused end speculation that fuel duty could rise for the first time in 15 years and electric cars will be subject to a new pay by the mile tax.
The minister was challenged on the issues on Sunday morning by Sir Trevor Phillips on Sky News and Laura Kuenssberg on the BBC.
Ms Alexander pointed out that the government is freezing rail fares but after being asked three times about fuel duty, she said: “You would not expect me to speculate on what is going to be contained in the budget next week.”
It is also being briefed that Ms Reeves will raise capital gains tax but will fall short of equalising it with income tax levels.
A minister told The Independent: “The ink definitely won’t dry on this budget until Tuesday night but it looks like the PLP [parliamentary Labour Party] is getting what it wants…wealth taxes and an end to the child benefit cap.”
The contents of the budget now though are being tied to the future of Sir Keir and Ms Reeves with continuing speculation that the PM could be ousted following a Downing Street briefing accusing Wes Streeting of plotting to replace him.
Along with Mr Streeting, former deputy prime minister Angela Rayner, energy secretary Ed Miliband and home secretary Shabana Mahmood have been the centre of leadership speculation in the last fortnight.
A senior party source told The Independent: “The PM and chancellor are buying themselves time. There will be elements of the media who hate these taxes but it will please members and the PLP.”
It has also emerged that the decision to ditch an income tax rise breaking the manifesto commitment also came after pressure from backbenchers.
One Labour MP said: “The message went up that it is hard enough for us to get a hearing on the doorstep as it is but if we did that [raise income tax], then the doors would have been closed on us and not reopened.
“People would have just said ‘you lied, we can never trust you again.’”
Another MP noted that recent interventions by new deputy leader Lucy Powell, who was elected to replace Angela Rayner on a platform of being critical of the Starmer premiership, “were very much voicing the concerns of the PLP”.
Ms Powell had spoken out against income tax rises but has been strongly supportive of “a fair tax system” including wealth taxes.
Already cutting welfare or other spending in significant amounts has been rendered impossible after the benefits rebellion forced Ms Reeves and Sir Keir to abandon cuts worth £5bn.
In addition, there is a belief that moves to get tough on asylum and water down human rights will need to be balanced out with more leftwing economic measures.
Another MP said: “There is a lot of unhappiness about us copying Reform with the asylum announcements this week so they seem to be in a place where they have to listen to us on the economy.”
The bank levy, which is being pushed heavily by the Trades Union Congress, could raise Ms Reeves £30bn by 2029 if she sets it at 16 per cent.
Meanwhile, scrapping a cap on how many children can qualify for child benefit in a family will cost the taxpayer £3.5bn a year.
The mansion tax was being suggested as a 1 per cent levy on properties worth £2million or more but there is an expectation that it may be set much lower at a maximum of £5,000 because of concerns about the London housing market.
A gambling levy could raise as much as £3.2bn a year according to some estimates which campaigners like Mr Brown believe would fund the end of restrictions on child benefits.
The Treasury briefed out last week that a U-turn on increasing income tax was because of better than expected estimates by the Office for Budget Responsibility with the black hole in spending believed to be about £20bn well below an early estimate of £40bn.
But Ms Reeves still needs to ensure she has an economic buffer beyond the £10bn she gave herself last year because of the potential for further economic shocks following Donald Trump’s tariffs, uncertainty in the markets and the impact of war.
She also needs to find the cash to meet the defence spending target of 2.5 per cent of GDP.
Economists have warned that the only sustainable way to do this is through raising one of the big taxes – income tax, VAT or employee national insurance contributions.
However, the chancellor is set to ignore this advice and push for so-called wealth taxes instead.
She has already indicated that cancelling non-dom status and putting VAT on private school fees has brought in more money than originally estimated despite huge criticism of both moves.
But critics have warned that the measures will create instability in the tax system and will drive away wealthy individuals.
