Reds under the bed: How are the UK’s main political parties positioning themselves on Capital Gains Tax?  

The Capital Gains Tax (CGT) aims to tax an individual’s gains made on the value of their assets for the financial year. Each political party’s position on this policy has become a lightning rod for how they are perceived on wider taxation issues and wealth creation by the electorate and business owners. Therefore, parties need to have distinctive and tight messaging on tax policy, without scaring off backing from businesses who have felt previously ignored. 

But how has both Labour and the Conservative’s messaging been deployed and manifested a change in their reputation with business so far?   

Both parties are determined to create attractive offers to businesses and investors as they try to step out from the shadow of their previous leader’s anti-business reputations.  This is exemplified by Rishi Sunak’s recent LinkedIn conference with business leaders, Business Connect, and Sir Keir Starmer’s courting of private equity chiefs on his party’s tax plan. The courting and pro-business rhetoric is likely to increase as election manifestos are drafted throughout the summer. 

Despite Tax policy being complicated and difficult to understand, this does not stop it from having a foundational effect on businesses and wealth creation. For politicians, it is largely considered to be the cornerstone of their raison d'être towards business.  

But any firm details are likely to be few and far between, with both Labour and the Conservatives not wanting to give away too much, too soon. 

Labour, in a bid to reclaim a reputation for financial prudence, have been determined not to be drawn on commenting on potential CGT tax changes. This tight-lipped attitude towards policy announcements has been outlined with Starmer’s spokesman refusing to flesh out any planned changes in detail. In addition to this, Shadow Chancellor, Rachel Reeves, previously described the current CGT system as being “fit for purpose” but not explaining why. Nonetheless, in a break from the Shadow Cabinet’s message discipline, Labour Deputy Leader, Angela Rayner, mooted that the party would consider a “fairer” tax system. This deviation from the party line highlights a potential obstacle for Labour, as opponents will be quick to highlight contradictions in their relationship with the business community. 

For the Conservatives, a respective change in their policy on CGT could undermine their relationship with business and cause divisions within the party. Sunak has already faced criticism from within that he has not cut taxes quickly enough. You may remember his government refused to freeze the planned corporation tax rise at his first Budget since becoming PM.   

He will need to show his intentions soon to appease sceptics. In 2016, the Tories cut CGT to 28%, viewing it as a strategy to increase business investment. Former Cabinet Minister, Sir John Redwood, no ally to Sunak’s government, stated Labour could reverse this change, highlighting the strong demand for a reduction in tax within the Conservative Party. 

In Rishi Sunak’s defence, he has already emphasised the government’s plans to further reduce CGT if rises in inflation slow down. Clearly, he sees cutting CGT as a good route in gaining the political upper hand over Labour on the economy and to bring potentially rebellious backbenchers on side. Halving the inflation rate is one of his five economic commitments and it would make sense for him to link an improving economy with a reduction of the tax burden. However, as with Labour, actual details remain scarce. 

As momentum builds for the election in 2024, and the possibility of a recession fades, investors and businesses alike will be keenly following the Labour and Conservative narrative on tax policy. Both political parties will need to understand what must be done to allow businesses to grow, whilst also keeping their parties united and balancing the needs of the public more generally. Whoever can present that balance best, will stand the most to gain.