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Reeves' Carried Interest Comments May Matter More Than Not Ruling Out CGT Hikes (2/2)

UK
  • Given that the government has identified a GBP22bn fiscal hole, while also committing to not raising income tax, national insurance or VAT, Reeves would not be expected to make even more tax commitments at this stage.
  • However, by identifying the importance of risk-taking and staking capital, Reeves hints at a more nuanced approach which is somewhat at odds with some groups, which are more left-leaning than the Starmer cabinet, among the Labour backbenches.
  • Full alignment of CGT with income tax is a widely touted reform to help plug the fiscal gap, but would leave the UK with among the highest CGT rates in Europe (for higher earners) at a time when the government is trying to convince foreign investors to back the UK.
  • Yesterday's comments indicate that a compromise solution involving some increase in CGT, but not full alignment with income tax bands, and potentially reliefs for certain CGT payers, could be possible.
  • The Autumn budget will be a significant market event and will also set the stage for how the government will balance the need to drive up economic growth with patching up stretched public services.
  • Raising CGT rates while still providing an incentive to risk takers would be a pragmatic growth-orientated approach, while full alignment with income tax would be a more politicised and short-termist move.
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