Rachel Reeves, Labour's shadow chancellor, is under increasing pressure from her colleagues to consider raising capital gains tax (CGT) as part of an ambitious autumn budget aimed at funding public services.
Now that increases in income tax, national insurance and VAT are off the table, Reeves is exploring alternative revenue-raising measures.
Labor insiders reveal Reeves is evaluating 12 potential budget strategies to strengthen the public purse. A source close to the discussions noted: “Rachel is considering a series of measures, each intended to make a modest contribution to the overall budget, which cumulatively generate significant funds.”
The push for a CGT increase comes as part of a wider strategy described by one Labor figure as a 'kitchen sink' approach, aimed at securing the necessary funds for radical public service investment and reform. This strategy involves unveiling in advance all potential fiscal measures to justify substantial interventions.
Despite these deliberations, a Labor spokesperson emphasized the party's commitment to fully funded and funded plans, claiming: “We have identified specific tax loopholes that we can close for immediate revenue without raising taxes.”
The proposed plans come amid a heated debate with the Conservative Party over tax policy. The Conservatives have pledged not to increase property taxes and have challenged Labor to match their 'family home tax guarantee'. Prime Minister Rishi Sunak has accused Labor leader Keir Starmer of planning massive tax increases, a claim Labor has dismissed as misleading.
Reeves has already ruled out significant tax increases, including almost all major taxes, but still recognizes the urgent need for new revenue streams to avoid deep cuts to public services in the next parliamentary term.
Labor's current budget proposals include increasing the windfall tax on oil and gas companies, removing tax exemptions for private schools and tightening regulations on non-doms. However, these measures alone may not be enough to bridge the financing gap.
The Resolution Foundation recently warned that without additional revenue, the next government could face £19 billion in cuts to unprotected departments by 2028-29, impacting sectors such as local government, the Home Office and the courts.
Some Labor members are calling for CGT rates to be brought in line with income tax, potentially increasing the higher rate from 24% to 40% or 45%, which is estimated to raise £8 billion. This approach mirrors a move by former Conservative Chancellor Nigel Lawson in 1988, which was later reversed by subsequent Labor budgets.
Alternatively, Labor could return to the pre-2023 CGT rate for second homes, increasing this from 24% to 28%. However, the Office for Budget Responsibility predicts that this adjustment will produce minimal budgetary gains.
Another option being considered is reintroducing the health and social security levy, a 1.25 percentage point increase in national insurance introduced by Boris Johnson and later scrapped by Kwasi Kwarteng. This levy, which would also include retirees, was partly intended to finance improvements in health care. Despite support from leading figures such as Sir Nicholas Macpherson, the former head of the Treasury, insiders suggest Reeves is unlikely to reintroduce the system to avoid breaking her pledge against National Insurance increases.
As Labor officials prepare to finalize the party manifesto, due next week, the focus remains on finding viable fiscal solutions to ensure robust and sustainable public services under a potential Labor government.
