John Healey will not raise capital gains tax in next week’s budget, despite previous calls to do so from cabinet colleagues including Louise Haigh and Wes Streeting. The chancellor has decided that any increase might ultimately cost the Treasury if wealthy individuals defer the sale of assets or move them out of the country, according to Treasury sources.
The tax is imposed on profits that individuals make when they sell assets that have increased in value, such as second homes or shares. The decision not to increase capital gains tax, first reported by the Financial Times and the Times, will mean the chancellor’s main revenue raiser is likely to be raising tax on banks’ profits.
In a speech last month, Healey said he wanted to prioritise wealth creation without it being constantly subject to penalties. He acknowledged that the cost of business, including energy bills, regulatory burdens, planning constraints, and labour costs, had grown since Covid and stated his desire to draw a line. He emphasized that the only way to deal with the cost of business or the cost of living in the long term is through growth, aiming to foster an environment of confidence, investment, and profit in British business.
In the race to replace Keir Starmer as prime minister, several senior Labour figures had suggested a route to equalising capital gains with income tax rates, including Haigh, now the first secretary of state. Streeting, now the defence secretary, had also suggested a rise, calling it a wealth tax that works and pointing to the growing gap between earned and unearned income.
Instead, Healey is poised to tax Britain’s banks in his budget on 28 October, amid strong earnings on the back of rising interest rates. The UK’s four largest lenders, namely HSBC, NatWest, Barclays, and Lloyds Banking Group, alone have generated 200 billion pounds in pre-tax profits over the past five years.
Healey is reported to be willing to accept a reduction in the fiscal headroom left by his predecessor, Rachel Reeves. The UK’s cost of borrowing has risen sharply in recent weeks, alongside that of other big economies, which analysts have suggested could as much as halve the 24 billion pound cushion Reeves had built up against Labour’s fiscal rules at the time of the last spring forecast.
Meanwhile, Conservative leader Kemi Badenoch is scheduled to deliver a speech arguing that the government should cut its spending plans instead of raising taxes, including reductions to welfare and the civil service. She is expected to argue that borrowing must be reined in and that cutting spending is the correct path to fairness for taxpayers, future generations, and those in genuine need of support, noting that half of the savings under their proposed golden economic rule would go toward reducing the deficit.