Jeremy Hunt is considering raising capital gains tax and slashing the dividend allowance as he seeks to fill the £50bn chasm in the nation’s finances, reports suggest.
In the wake of the disastrous mini-Budget which ultimately saw Liz Truss become Britain’s shortest-serving prime minister, the chancellor again warned on Thursday that there are “difficult decisions” ahead as the government seeks to “restore stability”.
Speaking after the Bank of England’s largest interest rate hike since the 1980s, Mr Hunt said that families and businesses are at “the top of our mind” as he and Mr Sunak look to plug the UK’s “massive fiscal black hole” with spending cuts and tax rises.
Having held talks with George Osborne in recent days as he prepares to deliver his much-anticipated Autumn Statement in a fortnight, the chancellor is reported to be mulling whether to emulate his austerity-era predecessor’s first Budget with a capital gains raid of his own.
Reductions in capital gains tax reliefs and allowances are the most likely to be given the green light, but Treasury officials have also put an increase to the headline rate on the table due to the scale of the deficit, the Daily Telegraph reported.
Capital gains tax is applied to profits made from selling shares, personal possessions, business assets and properties that are not your home. It is expected to raise £15bn this tax year, roughly 1.5 per cent of the Treasury’s total intake.
But previous research has suggested that bringing it into line with income taxes – which are significantly higher – could see an additional £16bn flow to the Treasury.
Changes to capital gains tax appear to be one of the electorate’s preferred routes for Mr Hunt to tackle the deficit, with YouGov polling this week finding it to be among the taxes that voters would like to see increased, behind only corporation tax and the top income tax rate.
Along with the Financial Times and Bloomberg, the paper also reported that Mr Hunt was considering halving or even completely scrapping the tax-free share dividend allowance of £2,000, the latter of which could potentially raise £1bn.
Wealth management firm Quilter told the paper that scrapping the dividend allowance would see people on the basic rate (8.75 per cent) taxed an additional £175 on their dividends, while others on the higher rate of 33.75 per cent would pay £675 and those on the 39.35 per cent additional rate would pay £787.
Mr Hunt is claimed to have asked officials to examine raising each dividend tax band by 1.25 percentage points – a week after a report by the Institute for Public Policy Research (IPPR) think-tank suggested that bringing it into line with income tax could raise £6bn.
George Dibb of the IPPR told the Telegraph that while “rumours that the government is going to scrap the dividend tax allowance are welcome”, the Treasury “should go further and start taxing dividends at the same rate as income tax”.
“Not only would this raise billions more to help support households and businesses, it would also end the injustice that working people pay a higher tax on their income than shareholders,” he said.
However, Craig Beaumont of the Federation of Small Businesses said: “The rise as mooted is another deterrent to becoming an entrepreneur”, adding: “Economic recovery will depend on entrepreneurship. Disincentivising this group in yet another way would be a short-sighted move from the new chancellor, himself a former entrepreneur.”
Along with the tweaks to the capital gains tax regime, the combined effect of the changes could run to the “low billions of pounds”, government insiders told the FT.
Following a meeting between Mr Hunt and Mr Sunak on Monday, a Treasury spokesperson said the pair had agreed that “everybody would need to contribute more tax in the years ahead”, and on “the principle that those with the broadest shoulders should be asked to bear the greatest burden”.
Following the Bank of England’s decision on Thursday to raise interest rates by 0.75 points, to 3 per cent, The Telegraph also reported that the Treasury was not working on a plan to help those facing mortgage defaults.
Meanwhile, The Times and Reuters both reported that Mr Hunt is considering a plan to extend windfall taxes on oil and gas companies’ profits, with the rate potentially increasing from 25 to 30 per cent until 2028.
Mr Hunt said the Bank’s announcement “was going to be very tough for families with mortgages up and down the country, for businesses with loans”, saying: “But there is a global economic crisis, the International Monetary Fund says a third of the world's economy is now in recession.
“The best thing the government can do if we want to bring down these rises in interest rates is to show that we are bringing down our debt. Families up and down the country have to balance their accounts at home and we must do the same as a government.”
