Labour forced to ditch ‘bat s**t crazy’ wealth tax plan after Treasury officials warn Chancellor it would backfire and cost the government billions
Labour has dropped plans to raise capital gains tax (CGT) on investments after Treasury officials warned Chancellor John Healey that a sharp increase could reduce revenue and deter investment. The proposal had been promoted by some Labour ministers and union leaders as a way to raise money from wealth, but officials said taxpayer responses could make it costly to the government.
The plan under consideration would have raised the top CGT rate from 24 per cent to 45 per cent, matching the top income tax rate. HM Revenue and Customs estimates cited in the article say a ten-point increase in the higher CGT rate could reduce annual revenue by more than £3.5 billion, while a five-point rise could cost £870 million; even a one-point rise is estimated to lose £30 million. Healey could still consider a smaller increase, and the article says he has also stepped back from lowering the Mansion Tax threshold.
- Labour has dropped plans for a sharp CGT rise.
- Officials warned the increase could lose billions in revenue.
- A smaller tax rise may still be considered.
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Capital gains tax is charged when people make a profit by selling assets such as shares or property. It is separate from income tax, which is charged on earnings. The amount paid depends on the type of asset and the person’s tax band.
The proposal discussed by Labour ministers and union leaders was to raise the top rate of capital gains tax from 24 per cent to 45 per cent. Chancellor John Healey and Treasury officials are responsible for weighing possible tax changes against their effects on public finances and investment.
The debate matters because tax rates can affect both how much the government collects and whether people choose to sell or invest. Treasury estimates cited in the report suggest that raising the rate could reduce revenue if people changed their behaviour.
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The case for
Supporters of raising capital gains tax argue that taxing investment gains more like earnings would make the system fairer and ask wealthier people to contribute more to public services. They may see a higher rate as a way to raise revenue and reduce the incentive to arrange income in more lightly taxed forms, while accepting that the rate should be set carefully.
The case against
Opponents argue that a sharp increase could prompt investors to delay or avoid realising gains, move assets, or invest less, shrinking the tax base and ultimately reducing revenue. They also contend that taxing gains at the same rate as income may discourage risk-taking and investment, so a smaller rise or no increase could better protect growth and public finances.