Chancellor of the Exchequer Rachel Reeves touched down in the United States yesterday, marking the start of a whirlwind tour across the US and Canada aimed at positioning Britain as a prime destination for investment. This comes ahead of the new government’s first budget, set to be delivered on October 30.
Before her departure, Reeves acknowledged the tough fiscal decisions looming, as she navigates a £22 billion budget deficit. Despite her stated intention to shield “working people” and avoid measures that could stifle investment, she has hinted at a possible increase in capital gains tax.
In a conversation with Bloomberg Television, Reeves stressed the importance of balancing tax policies to foster economic growth. “You need to bring in revenue to fund vital public services, but we also have to grow the economy. I won’t do anything that hinders economic growth and prosperity,” she said.
The Chancellor’s remarks suggest that a hike in capital gains tax is on the table, potentially aligning it with income tax rates. Such a move could significantly impact buy-to-let mortgage holders and investors, altering their after-tax returns.
Economists warn that raising capital gains tax might deter investment, posing a challenge as Labour seeks to draw foreign capital. One specific area under review is the tax treatment of carried interest—profits shared with fund managers. Reeves signalled that private equity firms with capital at risk might receive more favourable tax treatment. “If you’ve got capital at risk, it’s right to benefit from generous tax relief. But if it’s not your capital, those breaks aren’t justified,” she explained.
Currently, fund managers benefit from a 28% capital gains tax rate on returns, compared to the 45% income tax rate. Reeves emphasized the need for difficult decisions to stabilize public finances, attributing the budget shortfall to undisclosed pressures from the previous Conservative government.
An audit of public spending last week has fuelled speculation about potential tax hikes. Reeves cautioned about “difficult decisions across spending, welfare, and tax” but expressed a desire to lower Britain’s overall tax burden. “I want to reduce the tax burden to make Britain the best place to start and grow a business, and to let working people keep more of their money,” she stated.
Despite pressing inquiries about capital gains tax, Reeves maintained that finding the “right balance” in tax policy is crucial.
During her tour, Reeves is scheduled to meet with executives from companies like CoreWeave, promoting data centre construction in the UK. The government is also reviewing data centre decisions in Buckinghamshire and Hertfordshire.
This visit is part of a broader initiative to restore international investor confidence following years of political instability and Brexit-related issues. An international investment summit is slated for October 14, featuring CEOs from Blackstone, BNY Mellon, and CyrusOne.
Additionally, Reeves has not ruled out excluding Bank of England-related losses from government debt calculations, a move that could potentially create £16 billion in fiscal headroom by 2028-29, according to Bloomberg Economics estimates.