Tricky task: Reeves speaking at a conference in Britain. She is expected to announce a budget on Oct 30 that seeks fund public services and balance the books. — Reuters
LONDON: British chancellor Rachel Reeves could raise £15bil or about US$20bil a year from the wealthiest Britons by targeting capital gains and inheritance without triggering an exodus of millionaires, according to two think tank reports.
Aligning capital gains tax (CGT) with income tax would raise £14bil, the Institute for Public Policy Research (IPPR) said.
Reforming inheritance tax so the richest estates pay more could secure another £1bil, work by the Centre for the Analysis of Taxation (CenTax) showed.
Reeves is drawing up plans for as much as £40bil of tax rises and spending cuts in her budget on Oct 30 as she seeks to properly fund public services and balance the books.
The chancellor has pledged those with the “broadest shoulders” will bear the burden, and increases in CGT and employers’ national insurance are being considered. But economists say £40bil of consolidation is excessive.
Paul Johnson, director of the Institute for Fiscal Studies, said such a scale would be “truly extraordinary” on top of a tax burden already due to rise to its highest level in 80 years.
Business groups claim big tax rises on the rich would persuade wealth creators to quit Britain.
Pimlico Plumbers’ founder Charlie Mullins is leaving and the crypto investor Christian Angermayer has already moved to Switzerland. One in seven business leaders would consider moving their company abroad if the tax burden rises, according to a survey by pollster Savanta.
James Watt, founder of BrewDog, said a CGT hike would hit growth.
He wrote on LinkedIn on Tuesday: “Hiking up capital gains tax will destroy entrepreneurial spirit in Britain and in turn severely damage our economy.”
However, the IPPR, a left-of-centre think tank, said the warnings from the well-off should not be taken seriously. It has “consulted with several millionaire entrepreneurs” who said higher capital gains tax “would not deter them from making future investments, nor would it make them leave the country”.
Patriotic Millionaires, a group of more than 50 British entrepreneurs, argued that low rates of CGT are not a good way of encouraging new entrepreneurship.
Instead, the government should refine the 32 existing policies that are more effective at supporting innovation and investment, the IPPR said.
Graham Hobson, millionaire co-founder of Photobox, said: “The idea that raising CGT would discourage entrepreneurship is simply a myth. Entrepreneurs are driven by passion, problem-solving, and creating value – not by low taxes.”
Pranesh Narayanan, a research fellow at IPPR, said: “The recent fear-mongering from some that increasing CGT will take the economy back to the stone ages is pure hyperbole. It was famously pro-growth Conservative chancellor Nigel Lawson who equalised CGT with income tax rates in the first place.”
The CenTax paper proposed a series of inheritance tax reforms that could lower effective tax rates for estates worth less than £2mil while raising more from the largest. Estates worth more than £8mil would see their effective tax rates rise by five percentage points on average.
Business and agricultural land reliefs lower tax rates for the rich, with a quarter of estates worth over £10mil paying less than 9%. CenTax proposed capping the two reliefs at a combined £500,000 per estate, which would raise £900mil a year.
Setting a new exemption limit of £10mil for spouses would raise a further £350mil.
The government could choose to use some of the revenue to lower the burden on estates worth less than £2bil, CenTax said.
In a letter to the Independent newspaper, former Bank of England governor Mervyn King urged Reeves to ignore Labour’s manifesto pledges and reverse the Tories’ “irresponsible” £10bil cut to employees’ national insurance in the last budget before the election.
Labour has pledged not to raise taxes on “working people” but has not ruled out raising national insurance for employers, which could generate around £9bil. — Bloomberg
