UK Chancellor Warned Against 'Tax Raid' Jeopardizing Economic Recovery

Chancellor John Healey has been cautioned against undermining the United Kingdom's economic recovery through significant tax increases in the upcoming Budget. Lord Jim O'Neill, a former Conservative minister and economic adviser to Andy Burnham, urged lawmakers on October 14, 2026, to ensure the fiscal event does not stifle emerging signs of economic growth.

Healey is anticipated to announce tax rises and spending cuts as the government aims to raise revenue without increasing borrowing amid a volatile bond market. Lord O'Neill specifically advised against increasing capital gains tax (CGT), a measure favored by some within the governing party. The Chancellor has reportedly rejected proposals to equalize CGT with income tax rates, which would significantly raise the top rate from 24% to 45%.

Appearing before the Treasury Committee, Lord O'Neill noted that the UK economy has shown signs of growth, with economic expansion reaching 2% so far in 2026. "The most important thing for me... is this Budget doesn't screw any of it up, because it has been quite a while since we had 2 per cent growth," he stated. He also indicated that productivity was improving, emphasizing that "the last thing the Budget should be doing is to interrupt them."

Lord O'Neill further commented on the sentiment among businesses, suggesting that "any tax increase needs to be really thought through more carefully than before, especially things like CGT." He described the idea of taxing capital gains at the same rate as income tax as a "simplistic view" lacking understanding of relevant economic factors.

CGT is applied to profits made from selling assets such as second homes or shares. The current annual tax-free allowance for capital gains is £3,000, with profits above this threshold taxed at rates between 18% and 24%. This contrasts with income tax rates, which range from 20% to 45%.

These concerns come as the International Monetary Fund (IMF) revised its UK GDP growth forecast for the current year to 1.3%, an increase from a previous prediction of 1%. However, the IMF anticipates growth to slow to 1.2% next year, down from its earlier forecast of 1.3%.

In related commentary, Lord Gus O'Donnell, a former head of the Civil Service, suggested that the government needs to articulate a clearer, overarching vision for the country. Speaking at the Institute for Fiscal Studies' "green budget" event, he stated that ministers should move beyond incremental policy-making and present a coherent narrative that provides clarity for markets regarding the government's long-term direction.