Labour is facing mounting pressure to introduce wealth taxes in the upcoming budget, despite warnings that such measures could backfire by stifling Treasury revenues and prompting wealthy individuals to leave the country. Millionaire eco-tycoon and Labour donor Dale Vince has proposed raising Capital Gains Tax (CGT) and ending interest payments on commercial bank deposits with the Bank of England as a means to fund an increase in the personal tax allowance.
Chancellor John Healey and Andy Burnham, who are seeking ways to balance the budget and fund significant spending commitments, are reportedly considering these proposals. The Middle East crisis is said to have reduced the Chancellor's fiscal flexibility. Unions have also been advocating for increased contributions from banks and wealthy individuals.
Vince's submission for the budget suggests that aligning CGT rates with income tax, potentially reaching 45 percent, could generate £14 billion. Combined with ending interest payments to commercial banks, he estimates this could fund a £3,000 increase in the personal allowance to £15,570 annually. Vince argued that the current system is "backwards" and that directing money to those who will spend it would stimulate the economy. He stated that restoring the income tax allowance, which he claims has been frozen since 2021, would cost £20 billion, and that reclaiming the £30 billion paid in interest to banks could cover this cost with £10 billion remaining.
However, the Treasury's own projections indicate that a 10 percentage point increase in CGT could decrease revenues by £3.5 billion by 2028-29. Conservative chairman Kevin Hollinrake criticized the idea as potentially "the dumbest economic policy of all time," emphasizing that CGT applies to capital invested at risk. He argued that taxing it as if there were no risk would deter investment, harming jobs and the economy, and that it would also reduce tax receipts as individuals would defer sales. Hollinrake dismissed the proposal as "utterly stupid sixth-form economics."
Former Conservative Treasury minister David Gauke also expressed skepticism. He cautioned that proposals sounding "too good to be true" often are, and voiced doubts about raising substantial funds from the banking sector without negatively impacting its competitiveness and its lending to small businesses. Gauke suggested that there are no easy answers for increasing tax revenue, and that policies presented as beneficial to ordinary people while seemingly unaffected by the wealthy are unlikely to be credible, given the tax system's existing reliance on high-net-worth individuals.