Labour’s former shadow chancellor Anneliese Dodds has called on the Treasury to consider a wealth tax ahead of this autumn’s budget, warning that the government cannot avoid “big decisions” on how to fund growing public spending demands.
Dodds, who served under Keir Starmer and resigned earlier this year over the government’s decision to cut international aid, said Chancellor Rachel Reeves must confront the UK’s fiscal reality—and consider new tax measures, including on wealth, to fill a financial black hole that economists estimate could exceed £20 billion.
In her first interview since stepping down, Dodds told The Guardian that ministers must be open with the public about the scale of the challenge, especially with mounting pressure to increase defence spending while rebuilding underfunded public services.
“It’s important that we have a longer-term approach. That does mean confronting difficult questions around our fiscal position and taxation,” Dodds said. “If we’re honest about the nature of the challenge we face, we cannot duck that.”
Dodds stopped short of calling for specific measures but urged the Treasury to revisit the work of economist Arun Advani, whose 2020 Wealth Tax Commission proposed a one-off levy on millionaire households as a more effective alternative to raising taxes on workers or consumers.
“There needs to be a conversation where those with the broadest shoulders take more responsibility,” she said.
Her comments come as a growing number of Labour MPs—not all from the party’s left—push for wealth tax reforms this autumn. However, not all within government are convinced. Business Secretary Jonathan Reynolds has dismissed the idea of an annual 2% tax on assets over £10 million as “daft”, and some Treasury insiders have cast doubt on whether it would generate significant revenue.
Dodds acknowledged the risks and practical complexities, warning against the idea that any single tax change could quickly solve the UK’s fiscal problems.
“There’s no silver bullet here,” she said. “Any significant tax reform will have consequences. But we mustn’t pretend we can keep kicking the can down the road.”
She also argued strongly against further cuts to the UK’s aid budget to meet the government’s pledge to increase defence spending to 2.5% of GDP by 2027, with an ambition to reach 3% in the next Parliament.
Having resigned from her ministerial role in protest over the reallocation of aid to defence, Dodds warned of the long-term consequences of withdrawing from soft power diplomacy at a time when Russia and China are expanding their global influence.
“Now isn’t the time to be walking back from those commitments,” she said. “We’ve already seen a reduction in our soft power, and with that comes an impact on global security and migration.”
She pointed to the recent increase in asylum applications from countries like Sudan as an example of how foreign aid cuts can lead to rising population movement and domestic pressure.
Dodds also questioned whether the UK’s current fiscal rules—limiting borrowing even for long-term investment—are fit for purpose in a world of geopolitical instability and AI-driven economic change.
“It’s very difficult for the UK to pivot on fiscal rules in the way Germany has done,” she said. “But there’s no route forward without some risk and without some cost.”
On migration and asylum, Dodds urged ministers to show greater empathy in public messaging, calling for “a full and frank discussion” about the pressures on public services while also being clear that “we are ultimately talking about human beings.”
She declined to criticise Sir Keir Starmer directly over his recent remarks referring to the UK becoming “an island of strangers,” which drew widespread backlash. However, she emphasised the importance of explaining Labour values clearly, particularly as Nigel Farage’s Reform UK gains momentum.
“When I speak with people considering Reform, they say they want politicians to say what they really believe,” she said. “There’s a yearning for authenticity.”
Dodds also took a swipe at former Labour leader Jeremy Corbyn’s new movement, describing it as “a bit like the People’s Front of Judea” from Monty Python’s Life of Brian and warning that further splintering of the left could prove damaging at the ballot box.
As Labour prepares for its most consequential budget in over a decade, the message from one of its senior former figures is clear: tough decisions lie ahead—and avoiding them is not an option.