It must be the worst kept secret in the country. At almost every opportunity, the Prime Minister Sir Keir Starmer, and his Chancellor Rachel Reeves, keep telling us that the Budget in October will have to be ‘very painful’, that ‘taxes will have to rise’ and that the ‘broadest shoulders will have to bear the heaviest burden’. It now seems inevitable that there will be a big rise in capital gains tax. The trouble is, there is a catch. Almost everyone will have avoided it by then – and all Labour is doing is exposing its hopeless ignorance of how the economy actually works.

A rise in CGT from the current 20 per cent to 40 per cent or even 45 per cent now seems certain. Rises in income tax, corporation tax, and National Insurance have all been ruled out, so that leaves the levy on capital gains as the only real way of raising significant sums of money. The trouble is, people are already planning ahead. There are reports from accountants and financial advisers across the UK that small companies are being sold, share portfolios cashed in, and property holdings reshuffled to book the gains right away. 

That makes perfect sense of course. If you sell now, you only have to pay 20 per cent of whatever profit you have made, whereas if you wait until the end of the year you will have to pay twice as much to the government. The result? The raid will generate almost no additional revenue, for the simple reason that everyone will have sold if they can, and if they can’t, they will just hold onto the asset until the rate comes down again, or they can move abroad for enough years to avoid it. If you are going to raise CGT you have to spring it as a complete surprise, and implement it on the same day that it is announced, so that no one can plan ahead. Instead, Labour has made a complete mess of it. 

In reality, all it has done is expose how hopelessly ignorant this administration is of basic economics. Neither Starmer nor Reeves, even though she keeps boasting about how she ‘knows how to run the economy’, have worked out that taxes impact the way people behave, and that has to be taken into account when planning any major changes. That hardly bodes well for the next five years.