Reeves to consider capital gains tax plan to help fix ‘broke Britain’

The chancellor will declare Britain ‘broke and broken’ and reveal the scale of Labour’s dire financial inheritance from the Conservatives

Rachel Reeves is considering plans to raise capital gains tax in line with income tax to help plug a £20bn hole in the public finances, according to reports.

The chancellor will be presented with proposals by Treasury officials ahead of a speech in which she will declare Britain “broke and broken” and reveal the scale of Labour’s dire financial inheritance from the Conservatives.

Another option being considered by Ms Reeves is cutting pension tax relief for middle-class workers, The Sunday Telegraph reported.

Chancellor Rachel Reeves is expected to make a speech on public finances on Monday. (Justin Tallis/PA) (PA Wire)

Any tax changes will be announced in the budget this autumn. Ms Reeves will confirm the date of the autumn fiscal event on Monday.

The top rate of capital gains tax is 28 per cent, while the top rate of income tax is 45 per cent.

Labour ruled out raising income tax, VAT and national insurance during the general election but it did not take changes to capital gains off the table.

Equalising capital gains and income tax rates could raise £16.7bn, according to one study.

And pension contributions are currently tax deductible, with officials having made the case for introducing a 30 per cent tax on contributions. The independent Institute for Fiscal Studies (IFS) has said the charge could raise £2.7bn a year.

Ms Reeves is preparing to deliver a major speech laying the ground for either tax hikes or spending cuts in her first budget.

She will tell parliament that Rishi Sunak’s party left a £20bn black hole in the public finances, including making significant funding commitments this year with no idea how they would be paid for.

The government said “Britain is broke and broken” and will reveal “the mess that populist politics has made of the economy and public services”. It will set the stage for “difficult decisions” to be taken “to start to rebuild the country”.

But former chancellor Jeremy Hunt said the books have been “wide open”, accusing Labour of “peddling fiction which is widely rejected by independent commentators”.

He added: “Their motive is clear: having promised not to raise taxes 50 times before the election, they now need a pretext – but trying to scam the British people so soon after being elected is a high-risk strategy doomed to fail.”

Pat McFadden, Labour’s chancellor of the Duchy of Lancaster, said: “After 14 years of Conservative failure, the Labour Party is calling time on the sticking-plaster politics of populism.

“The electorate sent this changed Labour Party to government with a clear mandate to restore economic stability, grow the economy and build the homes we need.

“We will not shy away from being honest with the public about the reality of what we have inherited. We are calling time on the false promises that British people have had to put up with and we will do what it takes to fix Britain.”