CPS Warns Against Capital Gains Tax Hike
The influential Centre for Policy Studies (CPS) think tank has warned incoming Prime Minister Andy Burnham against caving in to demands from his own party to raise Capital Gains Tax (CGT). The CPS, which has close ties with the Conservatives, argues that the Government's own figures show that increasing CGT would cost the Treasury money rather than raise it.
According to CPS analysis, a 10 percentage point increase in the higher rate of CGT would slash Treasury revenue by £3.6 billion within three years. This is because wealthy taxpayers would likely move their money—and themselves—overseas to avoid the higher tax.
Narrow Tax Base at Risk
The CPS briefing reveals how narrow the base of CGT payers is and how exposed the tax is to a mass walkout by those who pay it. Official figures cited by the think tank show that 32,000 taxpayers are responsible for 80% of all CGT paid in Britain, with just 5,000 people accounting for half of the total take.
Some argue that even a modest increase could trigger a stampede of entrepreneurs and investors heading for more tax-friendly shores, dragging down revenue rather than boosting it.
Modelling Shows Revenue Loss
Modelling by trading platform IG, based on HMRC's published assumptions, found that raising the rate for additional rate taxpayers from 24% to 45% would cost the Exchequer £4.6 billion. Equalising CGT with income tax altogether could cost close to £7.76 billion.
Daniel Herring, Head of Economic and Fiscal Policy at the CPS and author of the report, argued that the reasons for wealth creators to remain in Britain were already shrinking after tax changes under Sir Keir Starmer. He cautioned that raising CGT further risked driving away those most likely to pay it.
Burnham Hints at Wealth Tax
While the CPS urged restraint on CGT, Burnham himself gave hints that he is looking at making the rich pay more in tax. In a wide-ranging interview with Gary Lineker for the Goalhanger podcast network, the incoming Prime Minister repeatedly declined to rule out a new wealth tax on the super-rich, insisting only that decisions on tax would be "difficult" and were "not for now."
Pressed on whether he would consider a levy targeting Britain's wealthiest, Burnham said the country needed a greater sense of fairness, and suggested that at some point the Government "might be having to ask for a little more" from taxpayers.
Political Reactions
Tory leader Kemi Badenoch seized on the remarks, accusing Burnham of "talking about raising your taxes AGAIN" before he has even taken office. Reform UK's Treasury spokesman Robert Jenrick claimed Burnham had all but admitted taxes would rise, while refusing to say which ones would be hit.
