City bosses have sounded the alarm on a hike in capital gains tax (CGT) today as Rachel Reeves rolls the turf for a sweeping round of tax raids at her first budget in October.
The Chancellor admitted for the first time on Tuesday the government “will have to increase taxes in the budget” after she claimed to uncovered a £22bn “blackhole” in the country’s finances earlier this week.
While Labour has committed to holding the rate of income tax, national insurance and VAT, the party has failed to rule out a lift in the rate of capital gains tax.
Such a move has triggered fears that entrepreneurs could be hammered and the flow of capital into British companies could be choked off.
“If you push capital gains tax up, entrepreneurs will just say ‘well, why would I come to the country? Because I can go somewhere else where the tax is cheaper’,” Alasdair Haynes, the boss of Aquis exchange, told City A.M.
“Entrepreneurs are losing and the government loses out on potential tax take. It’s not rocket science, so I can’t believe that she’d be stupid enough to actually raise it.”
Lifting the levy on capital gains is seen as one of the most likely revenue raisers the Treasury will turn to at its budget in October. Officials have reportedly drawn up plans to bring the rate in line with income tax, the highest rate of which is 45 per cent; a move that one report has suggested could bring in £16.7bn to the Treasury’s coffers.
Businesses currently pay a top rate of 20 per cent when they sell shares, while individuals pay the same rate if they fall into the upper income tax bracket.
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Lobby groups have warned that any shift upwards would eat into the incentive to start a company as the earnings from any eventual sale would be taken by the Treasury.
“No government at all serious about growth would hike CGT on entrepreneurs selling a small business,” said Tina McKenzie, policy chair at the Federation of Small Businesses.
“The commitment to work in partnership with business is something entrepreneurs have been glad to take on trust, and we fully hope and expect that is the path Labour will take in Government – anything else would be a betrayal of the promises made at the election,” she added.
Miles Celic, boss of lobby group TheCityUK, warned that changes to rates of CGT “may not necessarily translate quickly into an improved tax take” and any changes must “ensure that the UK remains an attractive place to do business and invest.”
FTSE 250 wealth manager Quilter has similarly warned the move could have “unintended consequences” on the investment landscape, particularly affecting “high-risk, high-reward sectors like private equity and venture capital”.
Reeves has already laid out plans to hit the private capital industry with a hike in the rate charged on fund managers’ personal profits. The Treasury told City A.M, yesterday the Chancellor “has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy”.