Labour leadership hopeful Wes Streeting has proposed introducing a 'wealth tax' by equalising capital gains tax rates with income tax, in a bid to woo the Labour left. Streeting claims this could raise £12bn a year for the Treasury, which he would use to fund public services and reduce inequality. The proposal has sparked a heated debate on the potential impact on UK savers, mortgage holders, and investors.
Currently, capital gains tax rates are significantly lower than income tax rates, with a top rate of 28% compared to the top income tax rate of 45%. Streeting argues that this disparity is unfair and that equalising the rates would be a more progressive and equitable way to tax wealth. However, some economists have warned that this could have unintended consequences, such as discouraging entrepreneurship and investment in the UK.
The proposal has been met with a mixed reaction from experts, with some arguing that it could be a effective way to raise revenue and reduce inequality, while others have expressed concerns about the potential impact on the economy and individual taxpayers. The UK's Office for Budget Responsibility (OBR) has estimated that the current capital gains tax system raises around £5bn a year, which is just a fraction of the £12bn that Streeting claims his proposal could raise.
Streeting's proposal comes as the UK's debt-to-GDP ratio is set to rise to 95.1% by 2026-27, according to the OBR's latest forecast. This has raised concerns about the UK's fiscal sustainability and the need for more revenue-raising measures to fund public services.
The Bank of England has also warned that the UK's high debt levels could make it more vulnerable to economic shocks, such as a recession or a rise in interest rates. Streeting's proposal may be seen as a way to address these concerns, but it is likely to be met with resistance from business leaders and investors who are concerned about the potential impact on the economy.