The UK government is currently engaged in a debate over whether to raise capital gains tax rates to align more closely with income tax bands, a move that could generate an estimated £12 billion annually. Capital gains tax is levied on profits made from selling investments or assets, including second homes and shares. At present, individuals can earn up to £3,000 in capital gains before owing tax, with rates ranging from 18 to 24 percent on profits above that threshold.

Proposals under consideration include adjusting capital gains tax rates to match the three income tax bands: 20 percent for basic rate taxpayers, 40 percent for higher rate, and 45 percent for additional rate taxpayers. Advocates argue this alignment would create a fairer tax system and increase revenue. Former health secretary Wes Streeting and Labour figures such as Louise Haigh have publicly supported moving capital gains tax closer to income tax rates, while emphasizing the need for protections aimed at genuine entrepreneurs.

However, concerns have been raised by economists such as Guy Ward-Jackson, a senior analyst at an institute associated with former Prime Minister Sir Tony Blair. In commentary published recently, Ward-Jackson warned that raising the capital gains tax to the highest rate in Europe—the proposed 45 percent—could deter entrepreneurial activity and long-term investment vital for economic growth. He characterized the UK’s core economic challenge as a “risk-aversion crisis,” noting that capital gains tax relief plays a key role in offsetting the risks entrepreneurs face when starting businesses. Ward-Jackson cautioned that increasing the tax rate to match income tax levels could discourage risk-taking and harm the country’s ability to attract and reward innovators.

Meanwhile, Labour leadership contender Andy Burnham, who served in Sir Tony Blair’s administration, indicated some flexibility on tax policy despite Labour’s 2024 manifesto commitments not to raise workers’ income tax, national insurance, or value-added tax rates. In his first interview since Sir Keir Starmer announced his resignation, Burnham suggested there could be scope to increase taxes on commercial warehouses as a means to support high street businesses such as pubs. Burnham’s team has yet to provide comment on the capital gains tax issue.

The debate reflects broader tensions over balancing revenue generation with fostering an environment conducive to investment and entrepreneurship, highlighting differing views within the Labour movement and the broader economic community.