Experts Clash Over Labour's Capital Gains Tax Reform Proposals
Economists and think tanks have been debating the impact of capital gains tax (CGT) reforms proposed by the Labour Party. Chancellor Rachel Reeves previously increased CGT rates, but receipts dropped by 18% in July compared to the previous year. Now, experts suggest various changes to CGT, including higher rates, abolition, and alignment with income taxes.
The Institute for Fiscal Studies (IFS) proposes 'substantially higher' CGT rates alongside reforms to the tax base. However, Tom Clougherty of the Institute of Economic Affairs (IEA) warns that CGT has 'strong behavioural effects' that could discourage investment and growth. The Adam Smith Institute suggests a phased abolition of CGT for long-term higher revenues, cautioning that the UK is already on the 'wrong side of the Laffer Curve'.
Top Westminster think tanks propose redesigning CGT rates to align with income taxes. Chris Etherington of RSM warns that major changes could lead to business owners moving abroad and reduced receipts. Wealth managers and think tanks caution that increased CGT rates may lead to assets being held longer, reducing short-term receipts.
The debate around CGT continues as experts offer differing views on the best approach. While some propose higher rates or abolition, others warn of potential negative impacts on investment, growth, and receipts. Recent discussions with economist Arthur Laffer, who developed the Laffer Curve theory, may influence UK policymakers' decisions on CGT reform.
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