Healey rules out capital gains tax rise in 28 October budget
Chancellor John Healey will not raise capital gains tax in next week's budget, despite earlier calls for an increase from cabinet colleagues Louise Haigh and Wes Streeting. Treasury sources said he decided any rise could cost the Treasury if wealthy individuals defer asset sales or move assets abroad.
Healey rules out capital gains tax rise in 28 October budget
Why the chancellor held back
The chancellor has settled on leaving capital gains tax untouched in the capital gains tax budget set for 28 October, a decision Treasury sources explained with the behaviour of the wealthy: any increase might ultimately cost the Treasury if wealthy individuals defer the sale of assets or move them out of the country. The FT and the Times first reported that the tax would stay as it is.
Capital gains tax applies to:
- profits individuals make when they sell assets that have increased in value
- assets such as second homes or shares
The cabinet pressure he resisted
Healey had faced calls from within the cabinet to raise the tax. In the race to replace Keir Starmer as prime minister, several senior Labour figures had suggested a route to equalising capital gains with income tax rates, among them Louise Haigh, now first secretary of state.
Wes Streeting, now defence secretary, had also suggested a rise, calling it a "wealth tax that works". He argued the current system meant a growing gap between earned income and unearned income. Streeting had considered running against Burnham in the contest to replace Starmer.
Growth message and the bank levy
The decision fits the message Healey gave in a speech last month, when he said he wanted to prioritise wealth creation without it being constantly subject to penalties, and that he wanted the country to be one of wealth creation, with government policy raising confidence, investment and profit in British business.
He set out the pressures he intended to relieve:
- energy bills, regulation burdens, planning constraints and labour costs, which he said have grown since Covid
- his conclusion that, whether it is the cost of business or the cost of living, the only way these are dealt with in the long term is growth
If capital gains tax is off the table, the budget's main revenue raiser is likely to be raising tax on banks' profits. Healey is poised to tax Britain's banks in his budget on 28 October, amid strong earnings on the back of rising interest rates. The UK's four largest lenders – HSBC, NatWest, Barclays and Lloyds Banking Group – alone generated £200bn in pre-tax profits over the past five years.
Headroom, borrowing costs and the opposition
Healey is reported to be willing to accept a reduction in the fiscal headroom left by his predecessor, Rachel Reeves. That cushion already looks thinner: the UK's cost of borrowing has risen sharply in recent weeks alongside that of other big economies, and analysts have suggested higher borrowing costs could as much as halve the £24bn cushion Reeves had built up against Labour's fiscal rules at the time of the last spring forecast.
The opposition will counter on spending. Conservative leader Kemi Badenoch will give a speech on Tuesday saying the government should cut its spending plans instead of raising taxes, including cuts to welfare and the civil service.
"We have to stop borrowing so much. But instead of doing that, Labour are taking out loans to pay the interest on our loans."
Badenoch will also argue the right way is to bring spending down now, that cuts are easier if based on fairness, and that under the Conservatives' "golden economic rule" half of the savings made would go to reducing the deficit.
The budget falls on 28 October, with the bank profits tax expected as the main revenue raiser and the chancellor reportedly ready to see Reeves's fiscal headroom reduced.
