Chancellor John Healey has reportedly rejected calls by senior Labour figures to raise capital gains tax to the same levels as income tax, after warnings that an increase would harm Britain’s appeal to investors.
Several senior cabinet ministers have in recent months called for capital gains tax (CGT) to be equalised with income tax in the upcoming Autumn Budget. However, Healey has internally ruled out the move, according to a report in the Financial Times.
One person cited by the paper called the proposal “batsh*t crazy”, while another argued the move could distort investors’ behaviour and cause people to leave the UK or delay asset sales, ultimately resulting in a fall in revenue for the Treasury.
Left-leaning think-tank Centax has previously argued the proposed raid could generate £14bn for the Treasury. The Institute for Public Policy Research, a Labour-aligned group that counts several ministers among its former staff, has said the move was a “no-brainer”.
Healey’s fiscal headache
CGT is currently charged at 18 to 24 per cent on most gains, including shares, funds, and residential properties.
Rumoured proposals under consideration by the Treasury suggested ministers could align CGT rates with income tax rates of 20 per cent, 40 per cent or 45 per cent.
Healey is facing a fiscal headache in his maiden Budget on 28 October, as he looks to raise revenues to offset the blow of rising interest rates and defence spending.
Economists have forecast that Healey’s headroom, which sat at £23.6bn in March, has shrunk in the wake of the conflict in the Middle East. On Sunday, the Institute for Fiscal Studies, warned that he faces a £35bn blackhole in the government’s spending plans.
The CGT divide
The call for a sharp increase in CGT was backed by key allies of Prime Minister Andy Burnham, including Louise Haigh, who called for it to be “brought closer to income tax rates” shortly before she returned to cabinet.
Former Labour leader Neil Kinnock and defence secretary Wes Streeting have also joined the chorus urging Healey to equalise the tax rates.
The increasing noise surrounding raising the levy has caused unease among investors, financial advisers and business leaders who warned wealthy individuals would quit the UK.
In an interview with City AM, Anna Macdonald, investment strategy director at Hargreaves Lansdown, warned Healey a fresh upheaval of CGT would “penalise investors” and put them off investing in the domestic stock market.
“We do seriously think that it would be disruptive to UK investors…even Treasury projections show that is kind of a counterproductive thing to do. We really hope it’s not going to be in the Budget,” she said.
The Treasury is now reportedly working on capital gains relief proposals designed to encourage entrepreneurs who sell their business to reinvest in the UK.
Other political opponents welcomed Healey’s retreat on CGT, but argued that he must get a handle on the country’s ballooning welfare bill instead of considering further tax hikes aimed at middle-class Britons.
Shadow Chancellor, Andrew Griffith, said: “John Healey is in headlong retreat. His Treasury kite flying has already had damaging consequences for economic confidence, impacting ordinary people’s jobs.
“Whilst U-turns on individual measure such as CGT hikes are welcome, with the tax burden at a record high the Chancellor needs to rule out any tax increases and instead grip the out of control welfare spending.”
A spokesperson for the Treasury said: “Decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”