Former chancellor and Conservative MP Jeremy Hunt has warned that raising Capital Gains Tax would be “terrible for the economy”, arguing that increasing the rate beyond 24% would reduce tax revenues as investors change their behaviour.
Speaking on IG’s The Art of Investing podcast, Hunt urged policymakers not to pursue higher CGT rates, saying the economic consequences would outweigh any short-term political gains.
Jeremy Hunt, former chancellor and Conservative MP, said: “It would be terrible. And it doesn’t matter if you’re left or right, don’t do it. If you increase your Capital Gains Tax above 24%, you will get less revenue, not more, because investors will change their behaviour.”
Hunt continued: “They won’t sell their assets, they’ll move their assets abroad, they’ll move abroad themselves. And you will get less money, not more. So if you’re a left-wing government that wants to raise more money to redistribute it to poorer areas or to put it into public services, don’t do this because you’ll get less money for the things that you care about.
“If you’re a centre-right government that wants to encourage enterprise and wealth creation, obviously don’t do it because you’re going to discourage precisely the thing that will make the economy dynamic and successful.”
Hunt also addressed recent research by IG suggesting the UK’s £100,000 tax cliff edge is discouraging people from taking on additional work and building wealth.
Between £100,000 and £125,140 of income, workers progressively lose their personal allowance, creating an effective marginal tax rate of 62%, while parents earning above £100,000 also lose eligibility for free childcare worth thousands of pounds each year.
Hunt said: “We’ve got this crazy situation where some people tell their bosses, ‘I don’t want to earn £100,000 – leave my salary on £99,000,’ because they’re better off being able to claim their free childcare and not deal with this tax cliff edge.
“We need to be a society in which we’re encouraging everyone to do the extra work that’s going to make the economy dynamic and competitive. These kinds of kinks in the tax system absolutely need to be ironed out.”
On the wider economy, Hunt said he believed lower taxes helped drive long-term growth, provided the public finances remained sustainable.
He said: “I’m very much a believer that tax cuts are very good for growth.
“Countries with lower tax grow faster, and significantly faster. But you also have to balance the books, and you have to persuade people who lend you money that you’re going to be able to pay back.”
IG said recent analysis found that equalising CGT with income tax rates would cost the UK almost £8bn a year.
Michael Healy, chief executive of IG Consumer, said: “We would strongly urge the incoming Prime Minister and the next Chancellor to avoid hiking Capital Gains Tax.
“At a time when the UK needs more people investing, building long-term financial resilience and backing British businesses, making investment gains more heavily taxed risks discouraging participation.
“Our analysis, based on HMRC’s own assumptions, suggests that aligning Capital Gains Tax with income tax rates would not only make investing less attractive but could also leave the Treasury worse off.
“We would welcome the opportunity to discuss the evidence on The Art of Investing podcast with Wes Streeting and other Labour MPs who support higher Capital Gains Tax, so we can have an open, constructive debate about what is best for investors, the economy and the public finances.”
