Chancellor scrambles to ease nerves over looming Budget as he kills Labour Left's hopes of capital gains tax hike… but targets banks

John Healey has moved to ease anxiety ahead of the Budget by ruling out hiking capital gains tax.

The Treasury has hardened up briefing that the package on October 28 will not increase the levy.

The move underlines the Chancellor's eagerness to avoid a fresh backlash from firms, who have already been hit with huge tax raids and minimum wage increases.

However, speculation is mounting that Mr Healey will opt to hit banks as he tries to find cash for Andy Burnham's pledges against the backdrop of the Middle East crisis.

The Labour Left - including some Cabinet ministers - has been clamouring for higher CGT on the sale of second homes, shares and other assets.

However, the prospect always looked difficult as the Treasury's own estimates suggest that increasing the tax would actually reduce revenue. That is because wealthy individuals could leave the UK or take other action to avoid paying. 

Economists have suggested Mr Healey could be helped by a windfall from higher inflation, which will drag people deeper into the tax system due to thresholds being frozen until 2031. 

While that would be beneficial to his efforts to balance the books, it will also leave families worse off and put intense strain on public services unless departmental funding also rises. 

Mr Healey has acknowledged that Britain finds itself in a 'tough' position ahead of the Budget.

Kemi Badenoch is using a speech this morning to warn the Government to slash spending by cracking down on welfare.

The Tory leader will urge ministers to 'live within our means', saying her plan for £70bn of cuts – including to benefits and the Civil Service headcount – is a starting point.

A poll has found that two thirds of Britons expect Labour to hike taxes at the Budget, while just 5 per cent anticipate the burden being lowered.

Some 58 per cent of people think the country is heading in the 'wrong direction', compared to just 18 per cent who believe things are looking up, the research by Ipsos found.

This comes despite Labour already raising the tax burden to a post-war high, with former chancellor Rachel Reeves hiking tax by £75billion at the previous two Budgets.

Sarah Coles, head of personal finance at AJ Bell, said of CGT increases being ruled out: 'Investors will be pleased to see the end of those potentially damaging Budget rumours, at least for now. 

'It will hopefully stop people taking steps they might come to regret later and crystalising gains they might otherwise have been able to make gradually and avoid tax on entirely.

'Not raising the rate is probably a sensible move from a tax revenue perspective. The August tax receipt figures were a useful reminder that for this particular tax, tightening the screw doesn't always raise more money for the public finances.'