Tax southern wealth to battle regional inequality, Reeves instructed – newest updates

Rachel Reeves has been urged to launch an £18bn tax raid largely on wealthy southerners in an effort to rebalance the economy and narrow the North-South divide.

Ramping up capital gains tax rates to match income tax rates would roughly double the levy’s annual haul, particularly targeting rich households in London and the South East, according to the Institute for Public Policy Research (IPPR), a left-leaning think tank.

Marcus Johns, economist at the think tank, said higher taxes would both raise money for a cash-strapped Government to help spend in poorer areas, and directly reduce inequality.

“We under-tax income from wealth compared to income from work and this special treatment benefits people living in the richest parts of the country like London and the South East. This is not just unfair, it’s a handicap on our efforts to rebalance wealth and opportunity between the regions,” he said.

“60pc of all private wealth in the UK is inherited rather than accumulated through work. That means people who inherit very little, or nothing, face an uphill task to build the wealth needed for a comfortable lifestyle.”

Capital gains made in London each year are almost five times higher per head than those in Wales, the IPPR said.

The analysts estimate wealth per head at just over £400,000 in the South East of England, which is almost double the more than £200,000 average in the North East of England. They expect the current gap of £190,000 to widen to £210,000 over the rest of this decade.

The biggest chunk of household wealth  – 42pc – is in pension pots, with 36pc accounted for by property. Another 13pc comes in the form of financial assets, such as stocks and shares, with the remaining 9pc classed as “physical wealth”, such as vehicles, jewellery and other valuables.

Capital gains tax (CGT) is levied on the increase in price between the purchase and sale of an asset, excluding those which are protected from the charge, such as a main family home, or shares held in an ISA.

The rate of tax varies depending on the asset and the income tax bracket of the person registering the gain, and is typically between 10pc and 28pc.

But the IPPR wants the Chancellor to change this so money made in a capital gain is subject to tax at the same rate as income. That would mean the charge rising to as high as 45pc.

The think tank estimates this would more than double the Treasury’s receipts from CGT, which is currently expected to raise more than £15bn this year.

However, the charge could raise far more, even without any changes: if worried landlords, business owners and other investors seek to sell up in anticipation of a raid in the October Budget, CGT will be levied on more transactions and so bring in more cash regardless of whether or not the Chancellor chooses to increase the rate.

So far Ms Reeves has declined to rule out changes to CGT.