Labour faces union revolt over wealth tax as Reeves braces for Budget

Keir Starmer and Chancellor Rachel Reeves are confronting a high-stakes clash with Unite the union over a proposed wealth tax, as Labour moves toward its autumn Budget and a potential overhaul of its fiscal rules. The union’s leadership has signalled it could sever ties with the party if Reeves does not adopt a more expansive spending plan and a different approach to taxation that would enable a substantial increase in investment in industry.

Unite general secretary Sharon Graham told Sky News that the time is approaching when the union’s funding to Labour — about £1.5 million a year — could be withdrawn if the party does not deliver a direction change at the Budget due on Nov. 26. Graham said Labour needs to “be Labour” and urged Reeves to tear up the party’s fiscal rules so the government can “splurge” more than £1 trillion on bolstering industry. “My members, whether it's public sector workers all the way through to defence, are asking, ‘What is happening here?’” she said. “Now when that question cannot be answered, when we’re effectively saying, ‘Look, actually we cannot answer why we’re still affiliated’, then absolutely I think our members will choose to disaffiliate and that time is getting close.”

Graham cited the Budget on November 26 as a critical moment for Labour’s direction. The push for a wealth tax has gained traction as Reeves works to balance the books amid a slowing economy, downgrades to productivity, and rising interest rates. Ministers, however, have so far ruled out implementing a wealth tax or any abrupt fiscal shift away from the party’s current rules. The fiscal gap has been reported to be around £30 billion, and business groups have warned that further tax hikes could risk a damaging “doom loop” for the economy.

Graham suggested that Labour should look to other European models for inspiration, arguing that if Germany could adopt more expansive fiscal rules and commit roughly £1 trillion to infrastructure and diversification, the UK should be able to mobilize a comparable level of investment. She contended that without dramatic changes at the Budget, Labour risked continued erosion of public and industrial support. “They (Labour) are going to have to do something quite dramatic, quite radical … at the Budget in terms of changing course, because if they don’t do that then people will going to continue to leave them, that is the reality,” she said.

When pressed about a potential leadership challenge from Greater Manchester mayor Andy Burnham, Graham said there was “no point” changing the person at the top if policy remains the same.

The unfolding row underscores a broader tension within Labour as Reeves seeks to balance a desire to grow public investment with a commitment to fiscal discipline that has underpinned the party’s current rules. While the leadership has signaled it will not abandon its broad fiscal framework, unions and some of Labour’s traditional funding base are pressing for more aggressive action to demonstrate that the party is serious about industrial renewal and redistribution. The Budget, now less than a month away, will be closely watched for any signals that Labour is willing to bend its rules to fund a large-scale industrial push, or if it will hold firm on maintaining a cautious path as it tries to persuade both workers and business groups that it can deliver steady growth within a revised but credible fiscal plan.

As the conference season approaches and unions sharpen their demands, Labour faces a delicate balance between maintaining coalition discipline and securing the funding and political support needed to enact a more expansive economic agenda. The outcome of this confrontation could shape Labour’s standing ahead of subsequent policy announcements and potential leadership considerations, even as Reeves emphasizes prudence and a measured approach to taxation and public investment. The party has consistently argued that any reforms would need to be credible, fair, and capable of sustaining growth while keeping debt under control, even as it remains under pressure from both markets and the union herd calling for bolder action.