Streeting proposes equalising capital gains tax with income tax in Labour leadership bid

Former health secretary Wes Streeting has proposed equalising tax rates on income and capital gains as part of his Labour leadership platform, calling it a “wealth tax that works.”

Streeting argued that the current system, under which capital gains tax is typically much lower than income tax, unfairly penalises work and widens inequality.

“The wealth gap in this country has widened, the opportunity gap in the country is widening and the gap between earned income and unearned income has also widened,” he told the BBC’s Political Thinking podcast.

Laying out his pitch for the Labour leadership, Streeting told Nick Robinson the plan could raise up to £12bn annually, citing the example of a woman in Lancashire who pays a higher tax rate on her salary than her landlord does on the rising value of the house she rents.

“She slogs her guts out, he puts in far less effort, yet the state rewards him more than her. And we wonder why people are angry,” he said. “The system is penalising work. It’s not fair and it’s bad for our economy. We need a wealth tax that works. A pound made from simply owning assets should not be taxed less than a pound made from a hard day’s work.”

Under current rules, higher and additional rate taxpayers pay 24% on capital gains in the current financial year. Streeting’s proposal would align capital gains tax rates with income tax bands of 20%, 40% and 45%, calculated by adding a person’s income and profits from assets.

A 2024 report by the Centre for the Analysis of Taxation estimated that changing capital gains tax could raise £14bn.

Critics warn that raising capital gains tax could trigger capital flight, discourage investment, or encourage investors to hold assets longer to defer tax. But Streeting said there was “a good pro-business, pro-growth, pro-productivity argument” in his plan, because the current system incentivises investment in less productive businesses.

“The kite that I am flying in this leadership contest will be to equalise those rates with allowances for genuine entrepreneurialism, investment, reinvestment, so that we can be both pro-worker, pro-entrepreneurialism, pro-fairness, and in the course of that generate up to £12bn worth of revenues,” he said.

The Ilford North MP also said the government should close loopholes that allow people to disguise income from work as capital gains, such as through personal service companies or taking pay in shares.

Streeting, who resigned from the Cabinet last week and called on Keir Starmer to step down, warned in his resignation speech on Wednesday that Labour must change course or risk handing power to Reform UK.

He said that although he had the support of the 81 MPs needed to trigger a leadership challenge, he decided not to proceed because he “got wind” that Greater Manchester mayor Andy Burnham had found a seat to contest.

“It was clear that if we had been plunged straight into a leadership contest by me or for that matter, anyone else, I think it would have been seen as a deliberate attempt to get ahead of Andy Burnham’s potential return,” he said. “And if there’s one thing that we need to do coming out of a change in leadership, it is to bring the tribes of the Labour party together, to unite around one leader as one team, drawing on Labour’s different political traditions to unite progressives and beat Reform.”