Ministers would be “stupid” if they hiked wealth taxes and “scared, lazy and limited” if they failed to deliver on welfare reform, a key Burnham ally has warned.
Lord Jim O’Neill, who only days ago rejected an expected government role, said more wealth taxes must come in the government’s crucial first step. budget would harm economic growth and cause entrepreneurs to leave the country.
The former Tory Minister of Finance, who was hotly tipped Andy BurnhamThe country’s top economic adviser said increases in taxes such as the inheritance tax and capital gains tax could actually “lose money” for the finance ministry, with business owners delaying the sale of companies and moving money out of the country to avoid taxes.
Lord O’Neill, who last week said the Government must tackle social spending to reduce debt and called for a ‘sensible, realistic approach to social spending’, said: ‘I think it would be stupid. At a time when many things are still struggling Brexit and is struggling with the changes in national insurance and the work the market is changing to zero hours to get that and inheritance tax, it’s like it would be even more, and obviously at a time when the country’s growth has been so weak.”
And the interbench peer told today’s Times that if ministers were to go ahead with tax rises in the Budget on October 28, it would show they are not ‘thinking as sincerely about growth as they claim’.
“I don’t understand why they would raise taxes,” he said. ‘All you’re saying is that they don’t think about growth as sincerely as they claim. They are just afraid, lazy and limited in dealing with the sacred cows.”
His comments will be a blow to Burnham, who has apparently spent more than a month fruitlessly trying to persuade him to join the government.
Meanwhile, ministers seemingly blind to calls to tackle rising welfare spending – which is costing the country £1 billion a day – have urged Burnham to instead increase taxes, such as the capital gains tax levied on gains from assets ranging from shares to second homes, buy-to-let properties and personal belongings.
Ministers have warned Andy Burnham against increasing capital gains tax in his next Budget as they fear it will cause entrepreneurs to leave the country
Lord Jim O’Neill (pictured), who only days ago rejected an expected government role, said more wealth taxes in the government’s crucial first budget would damage economic growth
Traditionally, CGT rates are applied at lower rates than income tax because profits usually come from people taking risks – whether entrepreneurs or investors.
Chancellor John Healey is also facing headaches over how to finance defense spending shortfalls to meet Defense Investment Plan promises, how to counter the impact of the Iran war on the economy and how to finance spending promises.
It is believed that fiscal space, a buffer against future spending, has shrunk from £22 billion to £15 billion.
Lord O’Neill, who hails from Stockport and chairs the Greater Manchester Local Enterprise Partnership (LEP) Advisory Board, also warned that Burnham would have to make some ‘hard choices’ when parliament returns after the recess and focus on areas that could deliver growth, such as London, the West Midlands and the northern region of Manchester, Liverpool, Sheffield and Leeds, rather than trying to deliver on his promise of ‘growth in every postcode’.
Lord O’Neill, a former chief economist at investment bank Goldman Sachs, said in a BBC interview last week that he was “in favor of a much more sensible approach to government spending and taxation” and was not in favor of wealth taxes.
The respected economist said he turned down the key government job because he did not want to be under “financial constraints” and preferred to simply be a “voice” he could turn to when needed.
Yesterday, economists warned that record capital gains tax revenues brought in by the government following former Chancellor Rachel Reeves’ tax increases would not last as people changed their behavior to compensate, echoing concerns raised by Lord O’Neill.
It was revealed that the Treasury had collected £24.2 billion in the 2024 to 2025 tax year, an increase of 89 per cent on the previous year, as the increase to key CGT rates came into effect mid-year.
That followed increases in the 2024 budget, which saw rates increase from 10 to 18 percent for basic rate taxpayers, while higher rate taxpayers faced a 24 percent levy on disinvestments, up from 20 percent previously.
A small number of taxpayers bore the brunt of the rate changes, with 45 percent of income coming from those making profits of £5 million or more, representing less than one percent of total CGT taxpayers per year.
But Elizabeth Bradley, partner at law firm BCLP, said the rapid rise in CGT liabilities “could provide short-term relief, but it could be a sugar hit caused by prevention”, meaning future falls in tax revenues.
She said yesterday: ‘If today’s exceptional spike is a reflection of what occurred before the Autumn 2024 Budget, the behavioral response to potential changes in CGT rates may now change.’
Pete Fairchild, National Head of Private Clients at tax firm Crowe, said: ‘Concerns about rising capital gains tax rates have undoubtedly led to many people bringing forward a transaction and selling an asset earlier than expected. Regardless of whether the rate ultimately increases, the government has collected taxes either way.”
He added: ‘While ministers may pat themselves on the back for achieving this outcome, there are some words of caution: the trend of wealthy people leaving the UK continues because of these measures, but is not helped by further concerns about the potential of an exit tax.’
