Chancellor Healey Rejects Calls to Raise Capital Gains Tax

Chancellor John Healey has dismissed calls from within the Labour Party to increase Capital Gains Tax (CGT), aiming to prevent a potential exodus of investors and businesses from the UK. The tax, which is applied to profits made from selling assets like non-primary residential properties or company shares, currently stands at 18% for basic rate income tax payers and 24% for those at higher and additional rates. If you pay income tax at the basic rate then CGT is charged at 18%.

The decision comes as the government prepares for next week’s Budget, with the chancellor looking to maintain business confidence. HMRC analysis conducted last year indicated that raising the higher rate of CGT by 10% could potentially cost the Treasury £3.6bn in receipts by the 2028-29 period, as wealthy taxpayers might defer asset sales or choose to leave the country entirely. Last year, HMRC estimated that lifting the higher rate of CGT by 10% would reduce the Treasury’s receipts by £3.6bn in 2028-9.

Healey recently emphasized his vision for the UK economy, stating his desire for a country of wealth creation where government policy fosters higher levels of confidence, investment, and business profit. This stance aligns with warnings from figures like Lord Jim O’Neill, a Goldman Sachs Chief Economist and former advisor to Prime Minister Andy Burnham, who suggested that higher capital levies would send the wrong message to the business community.

The debate over CGT has seen prominent Labour figures clash over fiscal strategy. Prior to the formation of the Burnham government in July, cabinet ministers including Louise Haigh and Wes Streeting had publicly advocated for higher taxes on capital. Haigh, now the first secretary of state, previously suggested that capital gains rates should move closer to income tax levels, while Defence Secretary Streeting called for a functional wealth tax earlier this May.

Despite this internal pressure, reports indicate that Healey has already effectively ruled out aligning the two tax rates. The chancellor’s approach is influenced by fears that such measures could stifle the economic environment, even as senior banking executives anticipate possible tax hikes on the financial sector due to recent high profits reported by UK banks.

Meanwhile, the political opposition is setting the stage for the Budget debate.

Tory leader Kemi Badenoch is scheduled to deliver a pre-Budget address on Tuesday, where she is expected to challenge the government’s current spending and borrowing trajectory.

Badenoch plans to urge the prime minister and the chancellor to prioritize fiscal responsibility by living within their means, while outlining a proposed Conservative plan to secure £70bn in savings through cuts to welfare and overseas development aid.