Chancellor John Healey has decided not to raise capital gains tax in his budget next week, rejecting calls from senior cabinet colleagues to bring it closer to income tax rates, according to Treasury sources.
Healey is understood to believe that an increase could ultimately cost the Treasury money if wealthy individuals delay selling assets or move them overseas to avoid a higher bill. The decision, first reported by the Financial Times and The Times, means a tax on bank profits is now expected to be the main revenue-raising measure when he delivers the budget on 28 October.
What capital gains tax is
Capital gains tax (CGT) is charged on the profit made when someone sells an asset that has risen in value, such as shares, a second home or a business. It does not apply to the sale of a main home. Rates were last raised in Rachel Reeves’s first budget in October 2024, when the lower rate rose from 10% to 18% and the higher rate from 20% to 24%, still well below the top income tax rates of 40% and 45%.
That gap has long been the focus of those who argue for reform. During the summer contest to succeed Sir Keir Starmer as prime minister, several senior Labour figures suggested equalising CGT with income tax. They included Louise Haigh, now first secretary of state, and Wes Streeting, the defence secretary, who described a rise as “a wealth tax that works” and warned of a growing gap between earned and unearned income.
Healey’s pitch for growth
Healey has signalled a different approach. In a speech last month, he said he wanted to prioritise wealth creation without it constantly being subject to penalties. “I recognise that the cost of business – that’s energy bills, regulation burdens, planning constraints, labour costs – have grown since Covid. And I want to draw the line,” he said.
“Whether it is the cost of business or the cost of living, the only way we deal with these in the long term is growth. I want to see this country as a country of wealth creation. I want our government decisions and policies to raise the levels of confidence and investment and profit in British business.”
Banks in the firing line
Instead of targeting individual investors, Healey is expected to increase taxes on Britain’s banks, which have enjoyed strong earnings on the back of higher interest rates. The four largest lenders, HSBC, NatWest, Barclays and Lloyds Banking Group, generated about £200bn in pre-tax profits over the past five years.
Banks already pay a surcharge on profits above a threshold, as well as a levy on their balance sheets. The industry has warned that higher taxes could reduce lending and make London less competitive as a financial centre, while supporters of a bank tax argue that lenders have benefited from rising rates at a time when households have struggled with higher mortgage and living costs.
Pressure on the public finances
The chancellor faces a difficult backdrop. The UK’s cost of borrowing has risen sharply in recent weeks alongside that of other major economies, and analysts have suggested that the rise could halve the £24bn of headroom Reeves left against Labour’s fiscal rules at the time of the spring forecast. Healey is reported to be willing to accept a smaller buffer rather than raise further broad-based taxes.
Higher government borrowing costs matter for households as well as the Treasury. They feed into the rates lenders charge for fixed-rate mortgages and leave the government with less money for public services, because more must be spent on debt interest.
Conservatives call for cuts
Conservative leader Kemi Badenoch used a speech on Tuesday to argue that the government should cut spending rather than raise taxes, including reductions to welfare and the civil service. “We have to stop borrowing so much. But instead of doing that, Labour are taking out loans to pay the interest on our loans,” she said.
“Any family or business in that position would know they were sinking, that every attempt to borrow their way out was pulling them deeper. The right way is to bring spending down now,” she said, adding that under her party’s proposed “golden economic rule”, half of any savings would go towards reducing the deficit.
What it means for investors
For savers and investors, the decision removes one of the biggest uncertainties ahead of the budget. Speculation about a CGT rise had prompted some people to sell shares and second properties early to lock in current rates, as happened before the 2024 budget.
But the full picture will not be clear until Healey stands up in the Commons next Wednesday. Other options, including changes to pension tax relief, inheritance tax and property taxes, have not been ruled out, and the Treasury has not commented on what the budget will contain.
