Labour ‘weighing income tax cut for lower earners by hiking capital gains tax’

Labour is considering proposals to cut income tax for lower earners by raising capital gains tax (CGT), according to a report.

Andy Burnham and John Healey are reviewing proposals to pay for an increase in the personal allowance by gradually bringing CGT in line with income tax, The Telegraph reported.

The idea was included in a submission to the Treasury by Labour donor and Ecotricity owner Dale Vince, who suggested funding a rise in the threshold by both hiking CGT and ending interest payments on Bank of England reserves, it is understood.

These two measures combined could raise the money to increase the personal allowance to £15,570, which is just below what it would have been had it not been frozen in 2021, it has been claimed.

In a statement, Mr Vince said the existing system was “backwards” and called on ministers to “put money into the pockets of the people who will spend it” to jumpstart the economy.

It comes as the Prime Minister stakes his early premiership on a promise to lead a “cost-of-living Government” with the pressures faced by UK households his primary focus.

Chancellor Mr Healey has said both affordability and wealth creation will be key priorities in his first Budget on October 28.

A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”

Mr Vince said: “We’ve spent years squeezing people at the bottom while handing billions to the banks and allowing wealth to be taxed more lightly than work. That’s backwards.

“If Labour wants to get the economy moving, it should put money into the pockets of people who will spend it.

“Raising the personal allowance to £15,570 would give millions of people a meaningful boost, with the biggest benefit going to those on the lowest incomes.

“We can pay for it by making the tax system fairer – starting with capital gains and the billions we currently hand to banks in interest.”