Lord Jim O’Neill, one of Andy Burnham’s closest allies, has warned that businesses feel “beaten up” as he warned the Prime Minister against another raid on British companies.
Speaking to MPs on the Treasury Select Committee, O’Neill doubled down on his opposition to capital gains tax hikes, which he argued could dampen business confidence and investment.
“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 capital gains taxes,” O’Neill said.
The former Goldman Sachs Asset Management chairman and ex-Treasury minister said he would not “be a fan” of taxes on banks, although he said that he would be “more opposed” to higher rates on capital gains.
He suggested the UK economy could be running at two per cent growth on an annualised basis due to a strong performance in the first half of the year. This would bring it to levels not seen since before the financial crisis in 2008.
O’Neill, who decided against taking up a formal role in Burnham’s government, also said it was possible that forecasters had “got it wrong” as productivity had appeared to improve. The Office for National Statistics said productivity growth was nearly double what it previously expected in the years between 2009 and 2019. The 1.3 per cent trend rate in this period is also above the Office for Budget Responsibility’s own projections for the next few years, having decided to downgrade its own productivity forecasts last year.
Initial data has pointed to a pick-up in productivity in the last two years, with estimates by the ONS indicating that output per hour worked has improved over the last year.
O’Neill argued that Rachel Reeves’ decision to increase national insurance contributions paid by businesses may have been “such a shock to employers that it’s actually indirectly kicked off some steps that effectively boost productivity”.
He also appeared to back former Bank of England economist Andy Haldane’s call for tax incentives to be re-worked to encourage pension funds to invest in UK assets. Haldane also advised Burnham before he became an MP but did not take up an official role in government.
Burnham’s promise to businesses
He added that while it would be “risky” for Chancellor John Healey to shrink his fiscal buffer, a £5bn change in the amount of headroom would not make a “slight difference”.
It was reported this week that Healey would not look to equalise capital gains tax rates with income tax rates, an idea backed by Cabinet ministers such as Wes Streeting.
Burnham and Healey told bosses on Tuesday they would lead the “most pro-business country in the world” but gave little indication of what their pledged “breathing space” could look like.
Conversations centred on youth unemployment, according to attendees. Healey is weighing measures to lower the cost of hiring under 25-year-olds, City AM revealed on Wednesday. Any measure will have to be analysed by the Office for Budget Responsibility, which measures the cost of different policies.