A capital gains tax (CGT) raid on Britons could lead to the UK having one of the most “anti-growth” tax systems in the world, a leading think tank has warned.
Chancellor Rachel Reeves is expected to announce reform to the levy in an attempt to generate more revenue for HM Revenue and Customs (HMRC) to boost the economy in her upcoming Autumn Budget statement on October 30.
However, a joint study by the US Tax Foundation and the UK’s Centre for Policy Studies (CPS) suggests her rumoured fiscal plans will have the opposite effect.
According to the think tanks, attempting to make more tax revenue from a CGT raid would see Britain have one of the least competitive systems in the Organisation for Economic Co-operation and Development (OECD).
Under the last Conservative Government, the UK has fallen to 30th place out of the 38 OECD countries based on the competitiveness metric, the Tax Foundation’s yearly ranking found.
With the measures being floated by the Chancellor, the CPS is warning that the country’s position could plummet by up to five places.
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If this projection becomes reality, Britain would only be ranked higher than France, Columbia and Italy.
This would come as a blow to the new Labour Government’s promise to make the UK a pro-growth economy.
It is understood that Rachel Reeves will not make changes to the rate paid on capital gains tax when it comes to the sale of second homes.
Despite this, Prime Minister Keir Starmer has hinted CGT on the sales of shares and other shares will be raised from the current rate of 20 per cent.
Daniel Herring, a researcher at the Tax Foundation, outlined why changes to CGT could be detrimental to Labour’s economic agenda.
He explained: “There’s a real danger that Britain could end up with one of the least competitive and most anti-growth tax systems in the OECD if the expected tax rises come to fruition in the Budget.
“If Labour really wants long-term economic growth, it needs to get serious about fundamental tax reform. It’s not just about cutting taxes.
“The way we raise tax is damaging incentives, getting in the way of innovation, and undermining productivity.”
Outside of CGT, the Chancellor is also said to be considering reform to inheritance tax (IHT) and raising the rate paid on National Insurance contributions by employers.
Going into the General Election, Labour pledged to not raise taxes on “working people”, including income tax, National Insurance and VAT.
A Treasury spokesman said: “The Chancellor has vowed to lead the most pro-growth Government in Britain’s history, restoring economic stability and delivering more investment into the UK economy.
“The record-breaking £63billion of private investment secured at the International Investment Summit is a vote of confidence that shows the UK is one of the best places in the world to do business, building on reforms to our broken planning system and support for businesses through capping corporation tax at 25 per cent and publishing a business tax roadmap to deliver the certainty they need to plan for the future.”
