Sir Tony Blair’s policy institute has delivered an unusually direct intervention in the debate over Britain’s tax strategy, warning Andy Burnham that raising Capital Gains Tax (CGT) could undermine investment at precisely the moment the UK economy needs it most.
The warning comes as Burnham, widely expected to become Prime Minister in the coming weeks following Sir Keir Starmer’s resignation, is reportedly considering aligning CGT with income tax rates as part of a broader effort to strengthen the public finances.
Such a move would represent one of the most significant changes to the taxation of investment income in decades and could raise an estimated £12 billion annually, according to the Centre for the Analysis of Taxation.
But the Tony Blair Institute for Global Change argues the economic consequences could outweigh the fiscal gains.
The debate goes to the heart of Britain’s economic dilemma.
After years of sluggish productivity, weak business investment and rising public spending pressures, the next government faces difficult choices over how to finance the state without undermining long-term growth.
Supporters of higher CGT argue that wealth generated through asset appreciation should be taxed more closely in line with income from employment.
Critics counter that capital gains reflect investment risk, entrepreneurship and long-term capital formation—activities that governments should encourage rather than penalise.
The Blair Institute firmly aligns itself with the latter view.
Guy Ward-Jackson, a senior analyst at the institute, said: “Taxing our way to prosperity is both bad policy and bad politics.”
He added: “In a world of rapid technological change, Britain’s prosperity is not guaranteed. We have to optimise for it.”
His warning reflects a broader concern that Britain risks becoming a less attractive destination for entrepreneurs and investors at a time when governments are competing aggressively for capital, innovation and high-growth industries.
Ward-Jackson argued: “Britain’s next leader has the potential to set out a new stall for growth and security – they must not squander it.
The investment question
Under current rules, Capital Gains Tax is generally levied at lower rates than income tax and applies to profits made from selling assets such as shares, investment portfolios and second homes above the annual allowance.
Reports suggest Burnham is examining whether those rates should be aligned with income tax bands, potentially increasing the top rate from 24 per cent to as much as 45 per cent.
The Blair Institute argues that such a shift would fundamentally alter investment incentives.
Ward-Jackson warned entrepreneurs need confidence that Britain rewards long-term risk-taking rather than discouraging it through higher taxation.
He argued that aligning CGT with income tax would “undermine those incentives” and “send entirely the wrong signal.”
The institute has also warned such a move could leave Britain with one of the highest effective capital gains tax rates in Europe, potentially weakening its competitiveness.
The intervention is notable because it reflects views closely associated with Sir Tony Blair’s longstanding emphasis on economic competitiveness, investment and growth.
Although the institute operates independently, its analysis is widely viewed as influential within parts of the Labour movement and among centrist policymakers.
Burnham has meanwhile indicated there is scope to revisit aspects of the tax system while remaining within Labour’s manifesto commitment not to raise the headline rates of income tax, National Insurance or VAT.
Speaking after Sir Keir Starmer announced his resignation, Burnham suggested other areas of taxation could be considered as part of a broader programme of economic reform.
Senior Labour figures have also publicly argued that wealth taxation deserves greater attention as governments search for sustainable sources of revenue.
The disagreement extends beyond the mechanics of Capital Gains Tax.
It reflects competing visions of how Britain should generate prosperity.
One approach prioritises higher taxation to fund public investment and public services.
The other argues that sustained economic growth, driven by entrepreneurship and private investment, is the only durable route to stronger public finances.
Neither side disputes the scale of the fiscal challenge facing the next government.
The argument is over which policies are most likely to solve it.
As Britain enters another period of economic uncertainty, the debate over Capital Gains Tax has become a proxy for a much larger question: whether the country believes its future prosperity will come primarily from redistributing wealth—or creating more of it.
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