City sounds alarm over Starmer’s ‘painful’ Budget warning
City figures have sounded the alarm over the Prime Minister’s warning of a “painful” Budget this autumn, urging him not to “punish risk takers” and warning against “taxing wealth creators”.
Sir Keir Starmer delivered his first major address from the No10 Rose Garden on Tuesday as he cautioned that the state of the public finances is “worse than we ever imagined”, ahead of what he claimed would be a “short-term pain for long-term good” fiscal statement in late October.
“We have no other choice given the situation we’re in,” he warned. “Those with the broadest shoulders should bear the heavier burden…. things will get worse before they get better.”
But Square Mile voices have stressed that if the Prime Minister and Chancellor increase taxes on wealth or capital gains they risk discouraging entrepreneurs and limiting “wealth creation” – something Starmer maintains is his government’s “number one priority”.
Experts at the Institute for Fiscal Studies (IFS) suggest upping CGT from 28 per cent to match the 45 per cent additional rate of income tax could raise the Treasury as much as £16.7bn – but HMRC’s own analysis cautions that such a move could lower receipts thanks to people delaying selling off assets.
“The UK’s competitive tax regime has fostered the development of the private capital sector, which makes a huge contribution to jobs and economic growth,” Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), said.
While a recent call for evidence on carried interest tax rates, he added, “recognises the sector as a vital channel for investment and having an important role in meeting the government’s mission to boost economic growth”.
Investor and restaurateur Luke Johnson posted on X, formerly Twitter: “The number one action to discourage entrepreneurs would be to significantly increase capital gains tax.
“Entrepreneurs start every business and generate [the] most innovation and the majority of jobs.
“This is wealth creation. Punish risk takers with much higher tax and some will leave and some not bother.”
Laura Suter, director of personal finance at AJ Bell, said the PM’s speech offered “perhaps the most compelling indication yet of which taxes could be on the table in the October Budget”, suggesting that increases to inheritance and capital gains tax were likely on the cards, while adding that the speech “will also reignite the rumours of a specific ‘wealth tax’ to be paid by the wealthiest in the UK.”
Robert Salter, a director at Blick Rothenberg predicted that following the Budget “higher paid workers will suffer significant increases in their personal, ongoing monthly tax burden.”
The CBI’s chief economist Louise Hellem stressed that while the new government had “inherited a challenging situation with tough choices to make”, firms needed certainty.
“A clear commitment to no further sector-specific taxes, windfall or otherwise, and an assurance to businesses that no rises in National Insurance also applies to employers as well as workers would help to restore the UK as a stable investment destination,” she added.
The calls come after Aquis CEO Alasdair Haynes told CityAM last month: “What is completely forgotten about is, if you want to get economic growth – you need entrepreneurs.
“You need entrepreneurs to found businesses and build businesses. They’re not coming to the UK if you put up capital gains tax to a much higher rate than it is now.”
Meanwhile, Starmer’s speech drew a barrage of criticism from free-market think-tanks. Robert Colvile, director of the Centre for Policy Studies (CPS), suggested if Labour opt to increase wealth taxes, the government will have “destroyed any chance of achieving their primary goal in government almost immediately”.
Tom Clougherty, executive director at the Institute of Economic Affairs (IEA), said the speech was about “softening voters up for a tax-raising budget in October.”
But he stressed with “broad-based taxes” ruled out, increasing business, savings and investment levies is “likely to have an outsized impact on growth, and as a consequence may not generate as much revenue as the government expects”.
“Significant tax increases that don’t affect ‘working people’ are a fantasy,” he added.