Ministers would be ‘stupid’ if they increased wealth taxes and ‘scared, lazy and constrained’ if they failed to tackle welfare reform, a senior Burnham ally has warned.
Lord Jim O’Neill, who turned down an expected government role only days ago, said more wealth taxes in the government’s crucial first budget would damage economic growth and see entrepreneurs quit the country.
The former Tory treasury minister, who was hotly tipped to be Andy Burnham’s Chief Economic Adviser, said rises in taxes like inheritance tax and capital gains tax could in fact ‘end up losing money’ for the Treasury with business owners deferring selling companies and moving money out of the country to avoid tax.
Lord O’Neill, who last week said the government must tackle welfare spending to bring down debt and called for a ‘sensible, realistic approach to welfare spending’, said: ‘I do think it would be stupid. At a time where a lot of business still struggles from Brexit and struggles from the changes in national insurance and the labour market changes to zero hours to have that and inheritance tax, it’s just like it would be yet more, and obviously at a time where the country’s growth rate has been so weak.’
And the cross-bench peer told today’s Times that if ministers went ahead with tax rises in the budget on October 28 it would show they were not thinking about growth ‘as sincerely as they claim they are’.
‘I don’t get why they would raise tax,’ he said. ‘All that’s telling you is that they’re not thinking about growth as sincerely as they claim they are. They’re just being scared and lazy and constrained in dealing with the sacred cows.’
His comments will come as a blow to Burnham who apparently spent more than a month fruitlessly trying to persuade him to join the government.
Meanwhile, ministers apparently blind to calls to tackle spiralling welfare spending – which costs the country £1bn a day – have urged Burnham to instead increase taxes like capital gains tax which is levied on profits from assets ranging from shares to second homes, buy-to-let properties and personal possessions.
Ministers have warned Andy Burnham against raising capital gains tax in his next Budget as they fear it will see entrepreneurs quit the country
Lord Jim O’Neill (pictured), who turned down an expected government role only days ago, said more wealth taxes in the government’s crucial first budget would damage economic growth
Traditionally, CGT rates have been applied at lower rates than income tax because profits tend to come from people taking a risk – whether an entrepreneurial or an investment one.
The chancellor John Healey also faces a headache over how to fund shortfalls in defence spending to cover the promises in the defence investment plan, how to counter the impact of the Iran war on the economy and how to fund spending promises.
The fiscal headroom, a cushion against future spending, is thought to have shrunk from £22billion to £15billion.
Lord O’Neill, who is 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 returned after the recess and should focus on areas that could deliver growth like London, the West Midlands and the northern powerhouse region of Manchester, Liverpool, Sheffield and Leeds rather than attempting to fulfil his ‘growth in every postcode’ pledge.
Formerly the chief economist at investment bank Goldman Sachs, Lord O’Neill said last week in a BBC interview that he was a ‘supporter of a lot more sensible approach to government spending and taxation’ and was not in favour of wealth taxes.
The well-respected economist said he had turned down the key government job because he did not want to be under ‘financial constraints’ and would rather just be a ‘voice’ to turn to when needed.
Yesterday economists warned that record capital gains tax receipts raked in by the government after former Chancellor Rachel Reeves’ tax hikes would not last as people adapted their behaviour to compensate, echoing Lord O’Neill’s concerns.
It was revealed the treasury had collected £24.2billion in the 2024 to 2025 tax year, an 89 per cent increase from the previous year as the hike to the main rates of CGT took effect midway through the year.
That followed rises in the 2024 budget raising rates from 10 to 18 per cent for basic-rate taxpayers, while higher-rate taxpayers faced a 24 per cent levy on disposals from 20 per cent previously.
A small number of taxpayers bore the brunt of changes to rates, with 45 per cent of receipts coming from those who made gains of £5million or more, representing less than one per cent of total CGT taxpayers each year.
But Elizabeth Bradley, partner at law firm BCLP, said the meteoric rise in CGT liabilities might offer ‘short-term relief, but it may be a sugar hit caused by forestalling’ meaning future declines in tax takes.
She said yesterday: ‘If today’s exceptional spike reflects forestalling before the 2024 Autumn budget, the behavioural response to potential CGT rate changes may now shift.’
Pete Fairchild, National Head of Private Clients at tax firm Crowe said: ‘The concerns over rising Capital Gains Tax rates have no doubt led many people to bring forward a transaction and sell an asset earlier than expected. Whether the rate ultimately increased, the government has collected tax anyway.’
He added: ‘While cabinet ministers will possibly pat themselves on the back for achieving this outcome, some words of caution – the trend of wealthy people leaving the UK continues because of these measures, not helped with further concerns about the potential of an exit tax being brought in.’
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