Kinnock’s £12bn tax bombshell puts wealth reform at heart of Burnham’s first Budget

Labour has reopened the battle over wealth taxation after former party leader Lord Kinnock urged Prime Minister Andy Burnham to equalise capital gains tax with income tax, claiming the move could deliver an extra £12 billion a year for the Treasury.

The intervention comes ahead of Labour’s first Budget on October 28, where Chancellor John Healey is expected to set out a series of tax measures as the government seeks to repair public finances and fund its spending ambitions.

Lord Kinnock, whom Mr Burnham has described as a key political influence, argued that aligning capital gains tax rates with income tax would represent a “fair change” and provide a substantial boost to government revenues.

Currently, capital gains tax is charged at 18 per cent for basic-rate taxpayers and 24 per cent for higher and additional-rate taxpayers, compared with income tax rates of 20 per cent, 40 per cent and 45 per cent. Supporters argue the gap allows wealth generated from asset sales to be taxed more lightly than earnings from work.

The proposal has attracted support from senior Labour figures, including First Secretary of State Louise Haigh and Defence Secretary Wes Streeting, as the government signals a willingness to revisit the tax system.

But economists and investment groups have warned that raising rates could trigger behavioural changes among investors and reduce the money collected. Analysis based on HM Revenue & Customs assumptions has suggested that a higher rate could potentially lower receipts if investors delay selling assets or restructure their affairs.

Former chancellor Jeremy Hunt has previously argued that the current 24 per cent rate represents the point at which revenues are maximised, warning that excessive increases could prove counterproductive.

The debate comes after successive reductions in the capital gains tax allowance, which has fallen from £12,300 to £3,000 in recent years, increasing the number of investors exposed to the levy.

The Treasury has not confirmed whether capital gains tax reform will appear in the Budget, saying only that tax decisions would be announced through official fiscal events.

For Mr Burnham’s government, the issue presents a defining test: whether it can raise billions from wealth without damaging investment, entrepreneurship and confidence in Britain’s markets.