Lord Kinnock has intensified the debate on tax reform, publicly calling on Prime Minister Andy Burnham to scrap the two existing capital gains tax rates and replace them with a structure aligned to income tax. The move, he argues, would generate an additional £12 billion for the Treasury.
The call came on Monday, with Kinnock pressing Mr Burnham to use the upcoming Budget on October 28, to be presented alongside Chancellor John Healey, to bring CGT into line with income tax rates. Under the current system, basic-rate taxpayers face a CGT charge of 18 per cent, while higher and additional-rate taxpayers pay 24 per cent. Income tax, by comparison, is levied at 20 per cent, 40 per cent and 45 per cent.
Why equalise capital gains tax with income tax?
Lord Kinnock, a veteran Labour figure and long-time political mentor to Mr Burnham, argues that aligning CGT rates would represent a fairness measure. He told the i Paper: “I’m sure that the Government understands the utility and the encouragement which the further £12bn revenues that such a fair change in CGT would bring.”
The Prime Minister, who is also Member of Parliament for Makerfield and a former Mayor of Greater Manchester, has previously acknowledged that Labour would likely need to ask taxpayers “for a little more” to fund public services and investment. Chancellor John Healey is widely expected to announce tax increases this autumn, and the CGT overhaul is seen as one of the most significant options on the table.
Support from senior Labour figures
The proposal to equalise CGT rates with income tax has already attracted high-level backing within the Government. First Secretary of State Louise Haigh, a close ally of Mr Burnham, has publicly supported the move. Wes Streeting, another prominent Cabinet figure, has also been associated with calls for reform.
The Prime Minister has previously spoken about the need to correct what he described as a “series of wrong-turns in the 1980s”, when “political power was centralised and economic power was privatised”. His remarks suggest a broader agenda to reshape the tax system in favour of workers and public investment.
Concerns from opponents and market experts
However, the proposed change has drawn warnings from opposition figures and financial experts. Jeremy Hunt, the former Conservative Chancellor, cautioned that raising CGT rates too sharply could backfire. He said: “Treasury officials told me that 24pc was the ‘revenue maximising’ level for capital gains tax.”
“That’s because when tax rates change, people change their behaviour and delay selling assets. Go too far in raising tax and revenues start to fall,” he added.
Joshua Raymond, of investment platform XTB, also expressed reservations. He said: “Capital gains tax has historically been lower than income tax because investing involves the possibility of losing money.”
“The lower CGT rate provides an incentive against that risk. If the two were aligned, that recognition would be lost,” Raymond explained.
What could the new rates look like?
Under the proposed alignment, CGT would be charged at 20 per cent for basic-rate taxpayers, 40 per cent for higher-rate taxpayers, and 45 per cent for additional-rate taxpayers, matching income tax bands. The existing 18 per cent and 24 per cent rates would be scrapped.
Such a move would represent a significant increase for higher earners and those realising large gains. For a basic-rate taxpayer, the increase would be from 18 per cent to 20 per cent, while higher-rate taxpayers would see their rate jump from 24 per cent to 40 per cent – a substantial rise of 16 percentage points.
Impact on investors and the Treasury
For investors, the change would reduce the tax advantage of capital gains relative to income. The Government would need to weigh the additional revenue against potential behavioural changes, as highlighted by Mr Hunt. If investors delay selling assets or hold them longer to avoid the higher tax, the anticipated £12bn windfall might not materialise in full.
The Office for Budget Responsibility would likely need to assess the fiscal impact before the Budget. Lord Kinnock has said the revenue would provide “utility and encouragement”, but experts remain divided on whether the gains would justify the economic consequences.
Next steps
The Budget on October 28 will determine whether Mr Burnham and Chancellor Healey embrace Lord Kinnock’s recommendation. With the Prime Minister already suggesting that tax rises are inevitable, the alignment of CGT rates is now one of the central talking points ahead of the fiscal statement.
As pressure mounts from senior Labour figures and external critics, the decision risks becoming a defining moment for the Government’s economic strategy. Whether the Treasury opts for full alignment, a compromise, or no change remains to be seen.
