The Labour Party is increasing its calls for wealth taxes in the upcoming Budget, despite warnings that such measures could negatively impact Treasury revenues. Dale Vince, a millionaire entrepreneur and party donor, has suggested raising capital gains tax (CGT) as a means to fund an increase in the personal allowance for many Britons. He proposed that this, along with ending interest payments on commercial bank deposits with the Bank of England, could generate sufficient funds. Vince stated that equalizing CGT rates with income tax, potentially up to 45%, could yield £14 billion, and suggested that this could allow for an increase in the personal allowance to £15,570 per year, just below its frozen level since 2021.
However, Chancellor John Healey has received warnings that further taxing wealth creators could lead to a decrease in revenues, with concerns that wealthy individuals may already be leaving the UK. The Middle East crisis has reportedly reduced the Chancellor's fiscal flexibility. Unions have been advocating for increased contributions from banks and the wealthy at the recent TUC conference.
Vince criticized the current tax system as 'backwards' and urged the government to prioritize putting money into the hands of consumers. He estimated that restoring the income tax freeze would cost £20 billion, while the annual interest paid to banks totals £30 billion.
Despite these proposals, the Treasury's estimates indicate that a ten-percentage point increase in CGT could actually reduce revenues by £3.5 billion by 2028-29. Kevin Hollinrake, chairman of the Conservative Party, cautioned that increasing CGT could deter investment and negatively affect job creation and tax receipts.
Helen Miller from the Institute for Fiscal Studies suggested that a broader tax reform approach would be necessary to effectively raise revenue, indicating that simply increasing tax rates may not yield the expected results. Chris Curtis, chair of the Labour Growth Group, acknowledged the complexity of the issue, while former Conservative Treasury minister David Gauke expressed skepticism about the feasibility of Vince's proposals, emphasizing the potential negative impact on competitiveness and lending to small businesses.