The budget watchdog has warned the Chancellor’s move to raise capital gains tax will leave a £23 billion hole in the public purse. Analysis of official forecasts suggests Rachel Reeves’ tax raid has backfired after investors looked to sell assets before the new rates came into force next week, it has been reported.
The Office for Budget Responsibility (OBR) published its latest forecast on Wednesday to coincide with the Chancellor’s Spring Statement. The Government’s financial watchdog downgraded its forecast for capital gains tax (CGT) revenues every year over a six-year period, creating a £23 billion shortfall. CGT receipts are £2.4 billion lower in 2024/25 and an average of £4.1 billion a year lower over the remainder of the forecast.
There were protests outside Parliament on Wednesday as Rachel Reeves announced welfare cuts (Image: Getty)
Ms Reeves announced rises in CGT in October during her first Budget, raising the lower rate to 18%, up from 10%, with the higher rate increasing to 24% from 20%.
CGT is charged on profit from selling an asset that has increased in value, such as stocks that are not held in an ISA, or a second home.
The tax applies to individuals, but also to company owners, partners in a business, and self-employed people, among others.
CGT also covers giving away an asset as a gift or transferring it to someone else.
Alex Davies, from investment platform Wealth Club, said raising CGT was “a ridiculous move from a government allegedly determined to ‘kickstart growth’.”
He told The Telegraph: “Put rates up and people change their behaviour, from rushing to sell before rates rise to holding on to assets for much longer in hope of a future rate cut. The result is fewer tax receipts long term and less economic growth as people transact less.”
Ms Reeves delivered her spring statement on Wednesday, announcing welfare cuts – which have faced strong criticism – and a £2.2 billion increase in defence spending.
The OBR halved its growth forecast for this year to 1% but upgraded its growth forecasts for the four years from 2026.
Ms Reeves blamed “global uncertainty” as she announced the welfare cuts, saying the world was “changing before our eyes” amid heightened tensions across the globe.
A Treasury spokesperson said: “The independent OBR’s detailed CGT forecast breakdown shows this is unrelated to Autumn Budget measures.”
