John Healey is unlikely to make any increase to capital gains tax (CGT) in the Budget, The i Paper understands.
The Chancellor is under pressure to raise money through so-called wealth taxes, and calls have been made for the rates of CGT – paid on the profits of the sale of an asset, such as a second home – to be set at the same rates as income tax.
While reports on Wednesday suggested the Chancellor would not do this, he appeared to leave the door open to a lower rise.
However, Healey will leave the rates of CGT untouched on 28 October, The i Paper has been told.
CGT currently sits at 18 per cent for basic-rate income taxpayers and 24 per cent for higher and additional-rate taxpayers.
The Financial Times reported earlier this week that Healey had rejected the idea of equalising CGT with income tax – a proposal which has previously been backed by Labour figures such as First Secretary of State Louise Haigh and the Defence Secretary Wes Streeting.
There have been suggestions that he could still increase CGT without fully aligning it with income tax rates, but this will not happen, a government insider indicated.
The Treasury is understood to be concerned that any further increases would result in it losing tax revenue. The current levels are believed to be the optimum for raising the most money. If the tax is set any higher then fewer people would pay it as they would seek to avoid it by not selling assets. There have also been warnings any rise would discourage foreign investment.
Key adviser warns against rise
On Wednesday, Lord Jim O’Neill, a financier and former minister who has acted as an informal adviser to Andy Burnham, told MPs that it would be a mistake to put up CGT.
Appearing in front of the Commons Treasury Committee, O’Neill said that the UK economy is showing “cautiously encouraging trends” and “the last thing the Budget should be doing is to do things to interrupt them”.
“Given how business feels so beaten up over however far you want to think, any tax increase needs to be really thought through more carefully than before, especially things like CGT,” he said.
Asked which he would opt for between a CGT hike or an increase to bank taxes – another change which Healey is believed to be mulling – O’Neill said: “I’d be more opposed to anything on CGT.
“If there has to be some numbers found [in tax], I would think it might to default to some modest move on bank taxes, but I wouldn’t be a fan of that either.”
Tom Goddard, assistant manager at tax specialists Blick Rothenberg, told The i Paper that any increase to CGT was always likely to be confined to a “token” rise of one or two per cent, because people can simply avoid paying the tax by holding onto their assets.
“As CGT is broadly optional, if it increases too much, people will be dissuaded from selling their assets,” he said.
Goddard added that “targeting banks and gambling companies” would be “the easiest win for the Chancellor”, but Blick Rothenberg expected it to be “a steady as she goes budget”.
“There is very little the Chancellor can do when it comes to tweaking taxation,” he said.
What taxes could Healey hike?
Healey is still likely to need to find some cash from somewhere. His fiscal headroom – in essence a financial buffer – is believed to have slipped by some economists to as low as £12bn from £24bn because of the Iran war. He is also under pressure to fund cost of living help – particularly on energy bills.
A temporary 5p a litre cut in fuel duty is set to expire at the end of the year, but the high cost of fuel is putting Healey under pressure to scrap the planned phased reintroduction.
He is also under pressure to increase defence spending, and plug a £4.7bn gap in the defence investment plan.
On Monday the Institute for Fiscal Studies warned he would have to find £35bn to avoid making cuts.
Economists speculate the most likely options remaining are a raid on banks in the form of an increase in the levy on profits, or windfall taxes on oil and gas giants.
Gambling firms could also be in Healey’s sights, with suggestions he could double the levy on high stakes slot machines from 20 to 40 per cent.
A Treasury spokesman said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”