Labour plots tax raid on savings and investments

·6-min read
Angela Rayner has criticised Rishi Sunak, the Prime Minister, for paying a lower rate of tax than most working people - Eddie Mulholland for The Telegraph
Angela Rayner has criticised Rishi Sunak, the Prime Minister, for paying a lower rate of tax than most working people - Eddie Mulholland for The Telegraph

Labour’s deputy leader has suggested that the party should raise taxes on savings and investments.

Angela Rayner made the comments as she criticised Rishi Sunak, the Prime Minister, for paying a lower rate of tax than most working people.

It is understood that a large increase in capital gains tax is on the table if Sir Keir Starmer, the Labour leader, wins the next election.

Sir Keir and Yvette Cooper, the shadow home secretary, refused to rule out an increase in the levy after being publicly confronted about their plans on Thursday.

A capital gains tax rise would come on top of other raids on the middle-classes planned by Labour, including reversing the Government’s plan to abolish the lifetime cap on tax-free pension savings and cancelling tax breaks for private schools.

The latest tax debate among senior Labour figures is likely to cause alarm among savers ahead of the election and may prompt a sell-off of assets.

The plans to reimpose the cap on tax-free pensions savings prompted warnings that people would take early retirement before the next election to try to avoid the levy.

The possibility of a capital gains tax rise under a Labour government came after records were published revealing that the Prime Minister earned nearly £5 million in three years but paid an effective tax rate of just 22 per cent.

Ms Rayner wrote on Twitter: “Rishi Sunak’s much-delayed return reveals a Tory tax system where the PM pays a far lower tax rate than working people - who face the highest tax burden in 70 years. His latest handout to the richest one per cent shows you exactly who he puts first.”

Following her remarks, Sir Keir declined to rule out that the party would bring levies on investment profits in line with income tax if it wins the next general election.

Capital gains duties are currently levied at 20 per cent on most assets, meaning it would have to be doubled to align it with the 40 per cent income tax rate.

The tax raised £15 billion last year and the annual haul is expected to hit almost £18 billion by 2028.

More than 300,000 taxpayers pay capital gains tax, according to the latest official figures, compared with less than 200,000 a decade ago.

A Labour Party spokesman said the party had no current plans to raise capital gains tax, but that it could not rule out a change in the future.

On Thursday, records released by the Labour Party revealed that Sir Keir paid £23,930 in capital gains tax last year, after earning £85,466 from his share of the sale of a house he bought for his sister and her children to live in.

It comes as he was accused of hypocrisy after it emerged his pension from his time as director of public prosecutions is exempt from the lifetime savings allowance he plans to reintroduce. On Thursday he pledged to scrap the tax benefits of his own pension.

Labour has released records showing how much Sir Keir Starmer has paid in tax - Stefan Rousseau/PA
Labour has released records showing how much Sir Keir Starmer has paid in tax - Stefan Rousseau/PA

The Institute for Public Policy Research, a think tank, has been campaigning for a rise in capital gains tax and it is understood that Labour had expressed an interest in the idea.

It has previously suggested several policies that have later been adopted by the party, including a windfall tax on the excess profits of energy firms and increasing public funding to achieve net zero.

Labour’s “grey book”, which it published alongside its last manifesto in 2019 to explain how it would fund its spending commitments, pledged to tax capital gains at the same level as income tax.

The party is yet to announce which measures it will keep ahead of the next election. However, Sir Keir has already said he intends to pursue his predecessor Jeremy Corbyn’s policy of axing the financial benefits that private schools derive from their charitable status.

Several Labour backbenchers are pushing for an increase in capital gains tax - including Richard Burgon MP, who has presented a petition to Parliament on the issue.

“This is a campaign that we are pushing as backbenchers,” he said. “There has been a lot of interest and a lot of support from Labour MPs from different parts of the country.”

The Labour Policy Forum, which has been conducting a consultation on policies to feed into its next manifesto, has received several submissions from Labour branches calling for capital gains tax to be reviewed.

The party has said it will reveal its policies on taxes closer to the next election.

“In relation to tax, obviously we will set out our position as we go into an election,” said Sir Keir on Thursday.

“In the end, that goes back to the point I made about the choices that are made. When this Government has had to raise taxes it has always gone for the same people, which is working people, and I think that is now writ large in relation to what we have seen in the last 24 hours.”

Meanwhile, Ms Cooper also failed to rule out equalising capital gains tax with income tax.

She told the BBC: “The point that Angela is making is a broader one, about the way in which the Conservatives have always ended up cutting the taxes for those who were on the highest income at a time when everybody else is ending up being squeezed and everybody else is ending up paying more and I just think that’s not fair.”

'Catastrophic' for business

On Thursday night, senior Tories warned that a raid on capital gains tax would stifle enterprise and be “catastrophic” for business.

Sir John Redwood, a former Tory cabinet minister who ran Margaret Thatcher's No 10 policy unit, said: “Britain needs more enterprise, not less. It needs more people prepared to take risks, create jobs and make money and capital gains tax is a big turn-off.

“Labour has in the past been very anti-enterprise. The last thing we want is to make it more difficult to innovate, create jobs and create new business.”

Lord Hammond, the former Tory chancellor, told The Telegraph: “Any uncertainty around capital gains tax regime, particularly for early-stage businesses, would be catastrophic.

“If Labour go into the next election with anything like the policy they had at the last election, which is the equalisation of rates, it would be completely catastrophic for the venture capital sector trying to innovate and grow.

“There’s a real concern that possibly they may not understand how important the capital gains tax regime is to make the UK a credible location for early-stage, high-growth potential businesses.”

A Labour spokesman said: “We have no plans to raise capital gains tax. Working people are facing the biggest fall in living standards on record yet the Government refuses to scrap non-dom status, put in place a proper windfall tax, or end tax breaks for private schools.”