Budget 2024: 'We can avoid taxing workers by hiking capital gains tax' – LabourList

With Labour’s first budget for 14 years fast approaching, speculation around tax rises has reached frenzied levels. Capital gains tax (CGT) has been the subject of many headlines in the last couple of weeks.

It’s one of the clearest options for raising substantial revenues without going near the pay packets of working people – work by Arun Advani and the Centre for the Analysis of Taxation shows that an overhaul of CGT, including equalising rates with tax on work, would net the Treasury £14 billion a year. For context, the Institute for Fiscal Studies thinks that the Treasury needs to raise £16 billion on top of the tax commitments made in Labour’s manifesto so this would go almost all the way towards plugging the famous fiscal black hole.

This change might look odd for a government that is deeply committed to investment-driven growth, but we need to separate arguments made by vested interests and ideological opponents of taxation in general from the genuine impacts of reform.

Finding investment

An opening salvo by the opposition came in the form of Charlie Mullins’ of Pimlico Plumbers fame, who suggested that he and his fellow millionaires would vote with their feet and abandon the British economy. Supposedly, innovators and risk-takers, the people who are supposed to drive growth, need special tax incentives to do their thing. If this isn’t offered here, then they would simply take their money and go somewhere else.

However, the Times reports that, despite his loud exit to the Costa del Sol, he remains invested in the UK through a new plumbing venture that will be run by his sons. This highlights a simple fact – millionaires, just like everyone else, are typically rooted to their families, their place and their communities.

READ MORE: Budget: Minister says ‘normal’ for cabinet to seek good deal for departments amid unrest over cuts

LSE researchers who interviewed wealthy members of “Who’s Who” list found this. IPPR did too, in our own research which included interviews with millionaire entrepreneurs who are in favour of tax increases on the wealthy. Wealth managers, and other businesses who serve wealthy clients, would have us believe that tax is the only thing wealthy people care about, but this simply isn’t true.

The other problem with arguments against reforming CGT is that, if the goal is to support entrepreneurship, low  CGT is an incredibly low value-for-money way of doing this. Capital gains aren’t just made through growth-enhancing entrepreneurship. At least half of all gains are made through passive asset ownership – simply owning shares or property that increase in value over time with minimal effort on the part of the owner. Entrepreneurs who are in the process of setting up or growing a business are much more concerned about the day-to-day running of their companies, rather than the tax on gains made when they may eventually sell the company.

Securing sustainable growth

The case against reform weakens even more when we look into all the ways the government can and does support entrepreneurs already. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide substantial tax breaks and loss relief for investors in startups. Venture Capital Trusts provide similar incentives for firms dedicated to investing in startups. Many entrepreneurs also receive grants or loans from Innovate UK or the British Business Bank.

The National Wealth Fund will provide financing support for larger scale or innovative growth industries when it is up and running. On top of this, the UK government is the most generous in the OECD when it comes to spending on support for business-driven research and development activities. Schemes like this prove that you can support people who are actually in the processes of delivering growth, rather than those cashing out after they’ve already achieved it.

READ MORE: Employment rights bill: What Labour New Deal policies will become law?

Entrepreneurship doesn’t happen in a vacuum – the economic conditions of the day are vital for determining whether a new venture would be a failure or success.

Public services are a crucial pillar of our economy, providing healthcare and education to deliver a healthy and skilled workforce, ensuring that courts and the legal system are robust and running smoothly. When they are in disarray, as they are now, this has an impact on the success rate of entrepreneurs and acts as a drag on growth. An extra £14 billion would go a very long way towards rebuilding these services and boosting the economic conditions that businesses operate in.

If we are to get Britain on the path to sustainable growth, that benefits working people around the country, there is no other tax reform that gets us there more effectively. There is no other tax reform that has the potential to raise this much revenue without going anywhere near the pay packets of working people. Delivering these reforms would make the economy better off and give the Labour party a clear chance to demonstrate their commitment to raising money from those with the broadest shoulders.