Conservatives claim higher capital gains tax would reduce state revenue

New Conservative analysis of Treasury data indicates that increasing capital gains tax rates would ultimately result in a net loss for the government. The opposition argues that internal government modelling demonstrates the current top rate is already high enough to discourage asset sales, meaning further hikes would suppress tax receipts rather than increase them.

The analysis references figures presented to the Labour government ahead of its first Autumn Budget in 2024. These documents suggest the Treasury assumed that raising the tax burden would lead to lower collections from investors, businesses and landlords. The Conservative case posits that the tipping point for this negative effect occurs when capital gains tax is levied at 22 per cent. According to the data, officials estimated that the taxable base would decline by 3.6 per cent for every one per cent reduction in the amount investors retain from their assets.

Shadow chancellor Mel Stride stated that the data illustrates the impact of raising taxes on investor confidence. He noted that Her Majesty’s Revenue and Customs estimates show that increasing the tax would cost the Treasury money, despite continued pressure from Labour cabinet ministers and think tanks to proceed. Stride described the motivation for such a move as an ideological stance against wealth creation.

Current capital gains tax rates stand at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional-rate taxpayers, following an increase from 20 per cent by former chancellor Rachel Reeves. Despite record collections of £127bn in the 2024/25 tax year, an 82 per cent rise from the previous year, successor John Healey faces pressure to raise the burden further. This push is supported by Duchy of Lancaster Louise Haigh, an ally of prime minister Andy Burnham. Although Burnham has previously described the UK as overtaxing labour and undertaxing wealth, he recently stated he would not tax wealthy individuals out of the country.

Simon French, chief economist at Panmure Liberum, commented that the behavioural effects of capital gains tax policy are more significant than in almost any other part of the tax system. He added that the latest data undermines the notion that there is a sustainable source of recurring tax revenue available to be tapped.