Jeremy Hunt considering plan to raise UK capital gains tax to fill £50bn black hole

Move expected to hit entrepreneurs hard at a time the country is heading into a recession

British Prime Minister Rishi Sunak and Chancellor Jeremy Hunt discuss the highly anticipated autumn budget. Photo: No 10 Downing Street
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The UK chancellor is considering raising taxes on the sale of assets such as shares and property to fill a £50 billion ($56bn) black hole in the public finances, according to reports.

An increase could also be imposed in dividend tax, in a move that would come as a blow to entrepreneurs.

A source close to Jeremy Hunt confirmed to the PA agency the tax increases were under consideration, but said no decisions had yet been taken — stressing “we are two weeks away” from the highly anticipated autumn budget.

The reports come at a time when the country has been struck by more bleak economic news, with the Bank of England raising interest rates for the eighth time in a row, as the UK heads into what could prove the longest recession in at least a century.

The chancellor acknowledged the difficulties facing homeowners and businesses after the central bank raised its base rate to 3 per cent, from 2.25 per cent, on Thursday, the highest increase in 14 years.

He acknowledged the problems affecting economies around the world but said UK Prime Minister Rishi Sunak would “fix” the issues caused by Liz Truss and Kwasi Kwarteng in September's ill-fated mini-budget.

Downing Street also warned of “difficult choices” to come on tax and spending, but pledged the government would ensure that “we are acting fairly, protecting the most vulnerable and continuing to seek long-term growth”.

One option on the table is an increase in the headline rate of capital gains tax — applied on profits of the sale or disposal of shares and other property, as well as changes to relief and allowances on the levy.

This would tend to mean a greater burden on wealthier people, as they are more likely to own such assets.

Cuts to relief and allowances are most probable, The Daily Telegraph reported, but much could still change before the budget on November 17.

The newspaper also suggested the chancellor is looking at increasing dividend taxes and halving or even slashing altogether the £2,000 tax-free dividend allowance.

Mr Hunt is considering the tax increases and spending curbs as the new government seeks to put economic stability front and centre in the wake of the market chaos sparked by his predecessor's calamitous £45 billion tax giveaway.

In a sign of how serious things became at the height of the turmoil, the governor of the Bank of England confirmed the UK was only hours from potential total financial meltdown after he mini-budget.

Andrew Bailey said the central bank was forced to step in “quickly” and “decisively” to mitigate a “very real threat to financial stability” after markets were spooked by the proposals.

He warned of a “tough road” ahead for Britain, saying Thursday's interest rate rise represented “big changes and they have a real impact on people's lives”.

The increase is the eighth consecutive jump in interest rates by the central bank, and the biggest since 1989.

It will pile about £3,000 a year for households that are set to renew their mortgages, the bank said.

Inflation is currently running at 10.1 per cent, but the bank predicted a peak inflation rate of slightly under 11 per cent. If the bank does not act to tame it, inflation will worsen, Mr Bailey said.

“This is a difficult time,” he said. “There is no easy outcome”.

Updated: November 04, 2022, 8:17 AM