Pressure is building on Labour to introduce wealth taxes in the Budget, despite warnings that targeting high earners and investors could ultimately reduce government revenues.
Dale Vince, the millionaire green-energy businessman and Labour donor, has called for capital gains tax (CGT) to be increased.
He argues that raising CGT, while ending interest payments made to commercial banks on their deposits at the Bank of England, could help finance a higher personal tax allowance for millions of people across the UK.
However, Chancellor John Healey has been warned that imposing another tax burden on wealth creators could prove damaging, with critics claiming it may drive investment away and further weaken the tax take as wealthy individuals consider leaving Britain.
Andy Burnham and Mr Healey are under growing pressure to find ways to balance the public finances while meeting expensive spending commitments.
The conflict in the Middle East is thought to have consumed a significant portion of the Chancellor’s financial headroom for achieving his fiscal goals.
Andy Burnham and John Healey (pictured) are facing mounting pressure to balance the books and finance major spending commitments
Millionaire green-energy businessman and Labour donor Dale Vince has called for capital gains tax to rise
Mr Burnham, meanwhile, has highlighted his focus on easing the cost-of-living squeeze as rising energy bills push inflation higher and the Bank of England prepares to increase interest rates for mortgage borrowers.
At last week’s annual TUC conference, trade unions repeatedly called on ministers to raise more money from banks and wealthy taxpayers.
In his submission ahead of the October 28 Budget, Mr Vince said matching capital gains tax rates with income tax rates — reaching as high as 45 per cent — could raise £14billion.
He said that, combined with ending interest payments to commercial banks, the proposal could generate enough money to lift the personal allowance by roughly £3,000, taking it to £15,570 a year.
That figure would be just below the level the allowance might have reached if it had not been frozen in 2021.
Describing the current tax system as ‘backwards’, Mr Vince urged ministers to ‘put money into the pockets of the people who will spend it’ in an effort to stimulate economic growth.
Speaking on BBC Radio 4’s Today programme, he said: ‘It will cost £20billion actually to restore the income tax freeze, which is really robbing people, particularly hard-working people.
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‘We pay interest to the banks every year totalling about £30billion. You know, the banks that don’t really pay us any money for our deposits with them. We, through the Bank of England, pay them 4 per cent at the moment for the money that they’re sitting on… £30billion, take that back, pay for the income tax allowance, and have £10billion in change.’
Yet Treasury estimates suggest that increasing CGT by 10 percentage points could have the opposite effect, reducing receipts by £3.5billion by 2028-29.
Conservative Party chairman Kevin Hollinrake described a CGT increase as potentially ‘the dumbest economic policy of all time’.
‘The clue is in the name — Capital Gains Tax — means gains on capital that you’ve invested and put at risk,’ he said.
‘Tax it as if there’s no risk involved and fewer people will invest. Bad for jobs, bad for the economy.’
Mr Hollinrake insisted it would also be ‘bad for tax receipts’.
‘You only pay CGT when you sell stuff, so people who’ve invested and own stuff already will defer selling stuff until a future govt sees sense and lowers CGT,’ he added. ‘Utterly stupid sixth-form economics.’
Former Conservative Treasury minister David Gauke also cast doubt on whether the policy would work.
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Mr Burnham has been talking up his commitment to helping Brits with the cost-of-living
Sir David told BBC Radio 4: ‘Anything that sounds too good to be true is almost certainly too good to be true.
‘I’m very sceptical that you can raise that sort of money from the banking sector, without it having a significant impact on competitiveness, a significant impact on lending to small businesses in particular.’
He added: ‘There isn’t, I’m afraid, an easy answer whether that’s the banking sector or a few high net worth individuals, our tax system is already very dependent upon the very wealthy. I’m afraid that answers that sort of sound terrific and mean ordinary people are unaffected are not going to be credible.’