Chancellor Rejects Calls to Raise Capital Gains Tax in Budget

Chancellor John Healey has dismissed calls from some Labour MPs to increase Capital Gains Tax (CGT).

Cabinet ministers Wes Streeting and Louise Haigh both previously voiced support for raising CGT before Andy Burnham became prime minister in July.

Ahead of next week's Budget, the Times reported that Healey is minded not to increase CGT. The tax is charged on the profit people make when they sell an asset that has increased in value, such as shares in a company or properties that are not primary residences.

Tax rates and possible impact

Basic rate income taxpayers pay CGT at 18%. Higher and additional rate taxpayers pay 24%.

Last year, HMRC estimated that raising the lower rate of CGT by 1% could raise £5m by 2028-9. It also estimated that increasing the higher rate by 10% would reduce Treasury receipts by £3.6bn in 2028-9.

The amount raised could fall if people change their behaviour in response to a tax rise. Examples include moving abroad or deciding not to sell a property.

Warnings and pressure within Labour

Earlier warnings cautioned against lifting CGT. Lord Jim O'Neill, a former adviser to Burnham and Goldman Sachs Chief Economist, said it would send “the wrong message to business”.

Some influential Labour figures had pushed for CGT to be equalised with income tax, which generally has a higher rate.

Louise Haigh, a key ally of the prime minister, had suggested capital gains should rise to move closer to income tax before she became Burnham's first secretary of state. In an article for the Renewal journal, she argued that raising CGT would shift the burden “away from punishing work, and towards unproductive capital accumulation”. She said this could be accompanied by measures to ensure that “genuine investment returns are not penalised”.

Wes Streeting, now Defence Secretary, called for a “wealth tax that works” in May, shortly after resigning as a minister in the government of former Prime Minister Sir Keir Starmer. He argued that equalising CGT with income tax would address an unfair system that was “penalising work”.

The Financial Times reported last week that Healey had already ruled out levelling the two tax rates.

The chancellor's stance

Last month, Healey spoke about the importance of businesses and self-employed people making profits. “I want to see this country as a country of wealth creation,” he said. “I want our government decisions and policies to raise the levels of confidence, and investment, and profit in British business.”

Communities Secretary Angela Rayner declined to speculate on the Budget when asked about CGT on BBC Breakfast. Asked whether rejecting calls for a higher tax was a win for the rich, she said the government had already taken steps to give people “breathing space” and help with the cost of living.

Other Budget pressures

Senior banking executives told the BBC they expect Healey to raise taxes on the sector. UK banks have reported bumper profits, and unions have called for higher taxes.

Healey will set out his tax and spending plans at his first Budget on 28 October. He faces pressure to ease the cost of living and to fund an increase in defence spending at next year's spending review. Rising prices linked to the US-Iran war form the backdrop to the Budget.

His options are limited. Labour's 2024 manifesto pledged not to raise income tax, National Insurance or VAT, which are the three largest revenue raisers. The government is also restricted in how much it can borrow under its self-imposed debt rules.

In a pre-Budget speech on Tuesday, Conservative leader Kemi Badenoch urged the government to cut spending and reduce borrowing. She said the prime minister and chancellor should “live within our means”, and pointed to her party's plan to save £70bn through cuts, including to welfare and overseas development aid. She said Labour would not “find the courage” to cut spending, and described the chancellor's approach as a “nothing to see here Budget”.

The Liberal Democrats have said the government could raise £14bn, partly through a windfall tax on bank profits. Deputy leader Daisy Cooper said the money could fund cuts to fuel duty, rail and bus fares, and VAT for hospitality businesses.