Ministers would be ill-advised to increase wealth taxes, such as capital gains tax, in the upcoming budget, according to a senior ally of Andy Burnham. Lord Jim O'Neill, who recently declined a government role, stated that such moves would harm economic growth and could prompt entrepreneurs to leave the country. He suggested that raising taxes like inheritance tax and capital gains tax might ultimately result in a loss of revenue for the Treasury as business owners defer sales or move assets to avoid taxation.
Lord O'Neill, a former Tory treasury minister and a figure tipped to be Burnham's Chief Economic Adviser, argued that additional wealth taxes would compound the challenges faced by businesses already struggling with the impacts of Brexit and changes to national insurance and labor market regulations. He described such a move as "stupid" at a time when the country's growth rate has been weak. He also indicated that implementing tax rises in the budget would demonstrate a lack of sincerity regarding a focus on growth.
"I don't get why they would raise tax," O'Neill said. "All that's telling you is that they're not thinking about growth as sincerely as they claim they are. They're just being scared and lazy and constrained in dealing with the sacred cows."
These remarks come as ministers reportedly urge Burnham to consider increasing taxes like capital gains tax, which is levied on profits from assets including shares, second homes, and buy-to-let properties. This advice appears to contradict O'Neill's perspective on wealth taxation.
Traditionally, capital gains tax rates have been lower than income tax rates, reflecting the inherent risk taken by individuals when investing or engaging in entrepreneurial activities. The chancellor, John Healey, also faces challenges in funding defense spending commitments, mitigating the economic impact of the Iran war, and covering other expenditure promises. The government's fiscal headroom, a buffer against unforeseen spending, is estimated to have decreased from £22 billion to £15 billion.
Lord O'Neill, who chairs the Greater Manchester Local Enterprise Partnership Advisory Board, also advised Burnham to concentrate on areas with growth potential, such as London, the West Midlands, and the northern powerhouse regions, rather than pursuing a "growth in every postcode" pledge. He emphasized the need for "hard choices" as parliament reconvenes.
Economists have previously warned that the recent surge in capital gains tax receipts, attributed to former Chancellor Rachel Reeves' tax increases, may not be sustainable. These receipts reached £24.2 billion in the 2024-2025 tax year, an 89% increase from the previous year, following hikes in the main rates of CGT. Higher-rate taxpayers now face a 24% levy on disposals, up from 20%, while basic-rate taxpayers saw rates rise from 10% to 18%. A significant portion of these receipts came from a small number of high-gain taxpayers. However, experts suggest that this spike may reflect forestalling behavior, where taxpayers sell assets in anticipation of rate changes, potentially leading to future declines in tax collection. Some also note a continuing trend of wealthy individuals leaving the UK due to such tax measures and concerns about potential exit taxes.