Government eyes capital gains tax hike

Prime Minister Andy Burnham and Chancellor John Healey are considering raising capital gains tax to 45% to fund a £3,000 increase in the personal allowance for lower earners.

The proposal comes from a Labour donor

Green energy entrepreneur Dale Vince submitted the proposal to the Treasury, suggesting the tax hike could fund relief for the lowest earners.

Lower earners would gain £600 yearly

Research by the National Institute of Economic and Social Research found that a £3,000 personal allowance increase would leave the lowest fifth of earners £600 a year better off.

The cost and how to pay for it

The £3,000 allowance increase would cost the Treasury £20 billion but could be funded by raising capital gains tax and ending interest payments on Bank of England reserves.

Current capital gains tax rates

Basic rate taxpayers currently pay 18% capital gains tax, while higher rate taxpayers pay 24%. The annual tax-free allowance is £3,000.

Support from senior Labour figures

First Secretary of State Louise Haigh and Defence Secretary Wes Streeting have both called for capital gains tax to rise closer to income tax rates to shift the tax burden away from work.

“It would shift the taxation burden away from punishing work, and towards unproductive capital accumulation which does little to grow the everyday economy.”

Critics warn of economic risks

The Centre for Policy Studies argues that raising capital gains tax could actually cost the Treasury money by discouraging investment and prompting wealthy people to leave the country.

“It punishes the kind of productive investment the country needs to grow, those most likely to pay it can and will leave the country.”