Peers press for answers on capital gains Budget speculation

Lord Leigh of Hurley (Con) asked about the government’s assessment of the impact on the UK economy of speculation about increases in capital gains tax.

The Financial Secretary to the Treasury, Lord Livermore, told him “there is speculation ahead of every Budget”. He added that the government is committed to ‘restoring’ growth and ‘rebuilding’ the public finances, including “addressing the £22bn black hole we inherited from the previous government”.

Lord Leigh, a chartered tax adviser, suggested that thousands of entrepreneurs are leaving the UK due to concerns about the potential increase in capital gains tax. He further asked if the government could rule out changes to business property relief on inheritance tax.

Lord Livermore repeated his party’s manifesto commitment “to not increase taxes on working people”, confirming that the government will not increase national insurance, the basic, higher or additional rates of income tax, or VAT.

Baroness Kramer (Lib Dem) observed that, “during the Conservative years, capital gains tax was held in the mid range of developed economies, but having an attractive rate, frankly, did nothing to stimulate either business investment or productivity growth.” She asked for assurance that any increase in capital gains tax will be in the context of a “credible and powerful” strategy for economic growth. The minister responded that growth is the government’s “number one priority”. He emphasised that the upcoming Budget is about “fixing the foundations of our economy”.

“It is tempting to suggest a tax on black holes” said Lord Cromwell (crossbencher). He continued that many people are taking out 25% tax-free cash from their pension due to concerns that it would be reduced, asking how the government plans to encourage pension funds to invest in British industry.

Lord Livermore acknowledged that investment is ‘crucial’ for the economy but said that he was not able to comment on speculation on specific taxes.

Lord Sikka (Lab) suggested that taxing capital gains at lower rates than wages “does not boost investment in productive assets”. He claimed that it could lead to “unfairness and tax abuse”. He asked: “Is the Minister aware that taxing capital gains at the same rate as wages can raise between £12 billion and £15 billion a year and also reduce tax abuse”?

Lord Markham (Con) reported that, according to HMRC’s analysis, a 10% increase in capital gains tax would “lead to a £2 billion reduction in the amount it raises”. He enquired whether the minister could confirm that the government is not planning to increase any “taxes where the net result is further costs to the public purse”, to which Lord Livermore repeated that he wouldn’t be able to comment.

Asked about the frequency of the Budget by Lord Wrigglesworth (Lib Dem), Lord Livermore confirmed that there would be only one Budget every year in Autumn.

Baroness Foster of Oxton (Con) referred to a Financial Times freedom of information request about the £22bn black hole to which the Treasury ‘declined’ to reply and asked if the minister could share more details.

The minister explained that the £22bn black hole consists of a £6 billion overspend on the asylum system and £3bn of uncosted commitments on road and rail projects. He added the previous government “overspent the reserve three times over just three months into the financial year”.

You can read the full exchanges here.