The Budget is fast approaching – where the chancellor Rachel Reeves will set out the government’s tax and spending plans.
In terms of spending, the government faces the double task of filling what they say is a £22 billion ‘black hole’ left by the Tories – and finding more money to keep public services running, avoiding a new round of austerity.
To meet this spending, Reeves is coming under increasing pressure to raise certain taxes.
One under intense debate this week is capital gains tax.
Capital gains tax
Capital gains tax (CGT) is the tax you pay on the profit when you sell assets or investments. The rate varies between assets, but sits at either 20 or 24%. This is far below the higher rates of income tax.
This leads to the absurd situation where the super rich often pay much lower rates of tax than working people.
Let’s take a high profile example. Last year former prime minister Rishi Sunak brought in £2.2 million in earnings (£1.8 million from financial investments). But he only paid 23% tax on it – the same tax rate as the average teacher.
That’s because most of the tax Sunak paid would have been capital gains – charged at 20% on financial investments.
This is clearly unfair and one of the reasons why we support raising CGT rates.
Who pays it?
Raising CGT rates would affect a tiny number of people – primarily the very wealthy.
In fact, in 2022, just 0.65 per cent of the adult population paid CGT, amounting to £15 billion of revenue for the Treasury.
Of this, £10 billion was paid by just 12,000 people who made average profits of £4 million. The vast majority of capital gains is paid by very wealthy people.
This data comes from the respected economics think tank the IFS, who this week came out in favour of reforming the tax.
Pressure to reform it
The IFS said the current setup of CGT was unfair and that they support “aligning marginal tax rates across all forms of gains and income”, while also closing loopholes in the tax.
The IFS aren’t the only ones saying it either. There’s been a flurry of support from other respected economics groups to reform the tax.
Our allies, the IPPR, today called for capital gains rates to be made the same as income tax rates. They said this would raise around £14bn extra a year.
Also adding their voice was new tax research group CenTax, who published a report in favour of CGT reform. They argue that reforming it would boost productivity.
Pressure is really growing on the chancellor to reform CGT. With these voices adding their names to the call and the fiscal context, it’s not hard to see why.
Making capital gains tax rates the same as income tax rates is a fair and effective way to raise more money – money desperately needed to fix our public services.
Tax wealth more
We wholeheartedly support calls from the IFS, IPPR and CenTax to reform capital gains tax by normalising rates and closing loopholes.
We’ve been campaigning for capital gains tax reform for years. It’s a central part of our campaign to tax wealth more effectively.
Our executive director Robert Palmer was in The Guardian this week, making the case that we should be taxing wealth more.
The proposals he put forward could raise up to £60 billion a year.
It would be a huge victory for our campaigning if the Chancellor reforms CGT at the Budget – we’ll keep up the pressure on the government in the coming weeks.