John Healey has ruled out an increase in Capital Gains Tax in his first Budget on 28 October, resisting pressure from Labour MPs who had urged him to make wealthier households pay more towards repairing the public finances.
The Chancellor is understood to have been persuaded by official analysis warning that raising the levy, charged on the profit made when assets such as shares and second properties are sold, could backfire if wealthy investors leave the country or simply hold on to their assets for longer. The decision, eight days before he stands up in the Commons, removes one of the most contentious options from his list of revenue raisers.
The numbers that changed minds
Capital Gains Tax is currently charged at 18 per cent for basic rate taxpayers and 24 per cent for those paying the higher and additional rates of income tax. Estimates drawn up by HM Revenue and Customs last year illustrate the Chancellor's dilemma. Lifting the lower rate by a single percentage point was projected to raise just 5 million pounds by 2028 to 2029, while a 10 point increase in the higher rate was forecast to reduce receipts by 3.6 billion pounds in the same year, as taxpayers changed their behaviour in response.
Mr Healey is said to be determined to avoid an investor exodus from the UK at a moment when the government can ill afford one, with the yield on 30 year gilts still close to its highest level since 1998 and the Office for Budget Responsibility finalising its verdict on his plans.
Capital Gains Tax and the Budget at a Glance
- John Healey will not raise Capital Gains Tax in the Budget on Wednesday 28 October.
- CGT is currently 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate payers.
- HMRC analysis warned a 10 point rise in the higher rate could cut receipts by 3.6 billion pounds by 2028 to 2029.
- Several cabinet ministers, including Wes Streeting and Louise Haigh, previously backed a rise before Andy Burnham became Prime Minister.
- A rise in the bank surcharge remains under active consideration as an alternative revenue raiser.
A dividing line inside Labour
The decision will disappoint a vocal group of Labour backbenchers who have spent the autumn arguing that the burden of the Budget should fall on accumulated wealth rather than on earned income. It is also a notable reversal for two members of the cabinet. Wes Streeting and Louise Haigh both voiced support for raising CGT before Andy Burnham became Prime Minister in July, and their allies had kept the idea alive in the pages of the party's in-house newsletters ever since.
Mr Burnham is understood to have backed his Chancellor's judgement, with Downing Street keen to present next week's statement as a Budget for investment as well as stability. The Prime Minister's advisers believe a visible clash over wealth taxes would unsettle the bond markets the government is working hard to keep on side.
What remains on the table
With CGT set aside, attention turns to the measures that are still live. The Treasury continues to lean towards an increase in the bank surcharge, the additional levy on banking profits cut from 8 per cent to 3 per cent by Jeremy Hunt in 2023, which officials believe could raise around 2 billion pounds a year. An expanded Warm Home Discount funded from the proceeds is among the options for the spending side of the ledger.
The Conservatives accused the Chancellor of dithering. A Tory source said the government had spent weeks floating tax rises only to retreat, leaving families and firms in limbo until the statement itself. Reform UK said the episode showed a party at war with itself over whether to tax work or wealth. With the OBR's window for final submissions closing, the remaining decisions, on banks, on energy bills and on the fiscal headroom, will be locked down within days.