Progress | Centre-left Labour politics

Who gains?

The Tories’ capital gains tax cut reveals their true colours, writes Liz Kendall

Last month’s budget was a disaster for the Tories, and more importantly failed the country.

Labour should be bold in setting out our alternative vision for Britain. We want a country that is confident about coping with adversity, secure in ourselves and our place in the world, and optimistic that we can shape the future to benefit us all.

This means tackling the big challenges we face with courage: the impact of globalisation and rapid technological change, our ageing population and growing inequalities in wealth and opportunity.

Failing the future

The Tories have shown that they are simply not up to the task of preparing Britain for the future.

Let’s start with the fundamentals of their failure.

Last month’s budget revealed that growth in the economy will be lower than predicted every single year of this parliament, and growth in average earnings has slowed again.

Public investment in crucial areas like transport infrastructure will be lower in five years’ time than it is now, and productivity is faltering too.

As a result, the Office for Budget Responsibility says ‘the public finances look materially weaker’. Government borrowing is up and the national debt will be higher for each of the next five years than the chancellor promised just three months ago.

David Cameron and George Osborne want to blame their failings on weaknesses in the global economy, but the OBR is clear: the cause of our worsening public finances is weak domestic growth.

The end of ‘compassionate Conservatism’

Set against this backdrop, and with all the challenges facing our economy and society, it beggars belief that the Tories thought the right priority was cutting benefits for the disabled while cutting capital gains tax for the wealthiest few.

This comes on top of their decision in last year’s budget to cut tax credits for millions of working people, at the same time as giving an inheritance tax cut to those at the top.

These priorities destroy Cameron’s claim to be a compassionate Conservative leading a ‘one nation’ government. As the former work and pensions secretary Iain Duncan Smith said when he resigned, these choices are ‘deeply unfair and perceived to be unfair’, ‘dividing the country not uniting it’, and hitting the poorest hardest simply because they ‘don’t vote for us’.

While the Tories claim they will not now go ahead with their cuts to tax credits and personal independence payments for the disabled, they are ploughing ahead with their cuts to capital gains tax and inheritance tax.

This epitomises all that is wrong with the Tories’ vision of what Britain needs to succeed in future.

Cutting the tax on profits made on capital gains overwhelmingly benefits the better-off who already own capital like stocks and shares.

It will not promote the long-term measures businesses desperately need to help them compete with the rest of the world or tackle the short-termism that has plagued our economy for too long.

Reducing capital gains tax will not encourage innovation, increase investment in technology and research, or help new businesses start, expand and succeed – all of which are essential to boosting jobs and growth and improving productivity.

Removing inheritance tax on all properties worth up to £1m also benefits only a very few at the top, and fails to ensure taxpayers’ money is focused on rewarding work and enterprise or spreading opportunity.

Cutting capital gains tax and inheritance tax will not increase the spending of the richest people in our society – it will simply allow them to accumulate more wealth to pass down to their children. With the government’s new Lifetime Isa, some of this money will no doubt end up in the savings accounts of the already better-off, to be topped up with public funds paid for through the hard-earned taxes of low- and middle-income earners.

Entrenching inequality

Crucially, these unfair tax giveaways will further entrench growing inequalities in our country.

In December last year the Office for National Statistics found that wealth inequality in Britain had risen for the first time in almost a decade, predominantly on the back of rapid rises in house prices in London and the south-east.

Between 2012 and 2014 the wealthiest 20 per cent of households had 117 times more assets than the poorest 20 per cent of households. The top 10 per cent of people now own a staggering 45 per cent of this country’s wealth.

These inequalities are unfair and unjust, and they hold us all back.

As the International Monetary Fund says, countries that are more unequal have shorter and weaker periods of growth. Countries that are less unequal have stronger and longer periods of growth.

In other words, the idea that if a few at the top do well wealth will somehow trickle down to everyone else is for the birds.

Growing inequalities harm our society as well as the economy.

The accumulation of wealth through cuts in capital gains tax and inheritance tax entrenches privilege and does nothing to reward work or merit, or spread opportunity.

This is something progressives will never support because it preserves, indeed exacerbates, the status quo, when we want to break it open.

Getting our priorities right so everyone can succeed

If Labour were in government, we would make different decisions because we have a different vision for how Britain succeeds in future.

We know our country has great strengths. We lead the world in many sectors from car manufacturing to pharmaceuticals and fashion.

But we can and must do better, so that more businesses expand and grow and more people have the chance to get a decent job, earn a good living and build a better life for themselves and their families.

We need a tax system based on clear principles of incentivising work and enterprise and rewarding long-term investment in innovation and productivity. These should apply as much to the income and assets of the wealthy as those on lower and middle incomes.

So instead of cutting capital gains tax, Labour should back measures to encourage long-term investment in the things that businesses really need to expand and thrive like skills and transport infrastructure.

We need to change the system so shareholders who hold on to their shares for longer are rewarded with greater rights.

There should also be far more support for initiatives like the Enterprise Investment Scheme. This gives a tax break for long-term investment in new companies. The money can then be used to expand the business, or invest in training, technology or research to improve productivity.

Similarly, instead of giving a £1bn inheritance tax cut to the wealthiest few, Labour should want to put this money into transforming early years services instead.

When the most disadvantaged children start school on average 19 months behind their better-off peers, they play catch-up for the rest of their lives. They struggle to get five decent GCSEs, let alone go on to college or university or get a decent job.

There is nothing economically credible about paying more for problems that could be prevented by taking action earlier on.

Having a genuinely long-term economic plan means high quality early years services, particularly for disadvantaged children, so every child starts school ready to learn.

Health visitors and other children’s services should play a stronger role in supporting parenting from birth, and – as the Sutton Trust recommends – all staff working with disadvantaged two-year-olds should be qualified to at least level 3 and supported by a graduate practitioner.

The courage to take difficult decisions

Labour should consider how to rebalance the tax system to ensure those with the greatest wealth pay their fair share and to better reward work, enterprise and merit.

It cannot be right that the very richest in society, who make their money predominantly through investing in property and speculating in shares, pay ever lower rates of tax on their profits while some headteachers and doctors pay an income tax rate of 40 per cent.

The desire to pass on your home to your loved ones is completely understandable. It is what many parents want to do and one of the reasons why people work hard to buy a home and pay off their mortgage in the first place. Their motivations are not selfish – they simply want to help their family.

The current system is, however, distorting life chances. Passing down wealth in this way gives children who are lucky enough to be born into a better-off family an even greater advantage, rather than rewarding them for their own hard work and efforts. It is also harming our economy by entrenching inequalities that hold us all back.

Reforming wealth taxes is not politically easy.

But a Labour party that believes in work, opportunity and equality must have the courage to face the tax debate head on. This will be crucial if we are to prepare our country for a more secure, confident and optimistic future where everyone can succeed. 


Liz Kendall MP is a former member of the shadow cabinet


Read too:

Julia Unwin of Joseph Rowntree Foundation Read>

Nick Pearce of the Institute for Policy Research, University of Bath Read>

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Liz Kendall MP

is former shadow minister for care and older people


  • The only immediate flaw I see in this article Liz, is the oxymoron contained within the statement: The end of ‘compassionate Conservatism’ – this ceased to exist in 1979, and only then if we recognise that conservatism prior to 1979 was patronising and paternalistic.

  • what i do not see in the current labour plans is how they will help the self employed – the popular name in the white van man – i have just move to Addescombe to a street of while van men – they are not poor 0 they own their own homes and at least on child is going to university – but there are no tax plans to allow these men and women to take a year off and skill – up and many are wishing to do so – it is not just the young that need education to skill up but those in the 40s and 50s – if one is going to work until one is 70 these people are right to want the government to make it possible for them to skill up – if that were in place – the members of ukip would go down significantly

  • Delighted that Liz has sought to look far broader than the current tax debate – this is about using levers to develop a proper industrial strategy for the good of everyone. It is something the Tories just don’t get. Let’s be proud that Labour introduced the Enterprise Investment Scheme, extended Entrepreneurs Relief, and broadened the scope of Venture Capital Trusts – yet when did you ever hear a member of Labour’s front bench team ever talk about that? Why not deploy wealth for the common good?

  • I agree with Robert Peston’s analysis and his, we are all in it together, show us what Taxes you pay, most of your VOTERS are PAYE tax payers. EU Law turns our own LAW’s into an ASS, that unelected judges are overruling the decisions of parliament on tax rules.

    The whole world’s “Rich” use their accountants to avoid paying tax. One rich American woman once said the rich never pay tax. Just set up a company say in the British Virgin Islands to “Bank” your millions, then payout as you like it for luxury houses, yachts and cars, or anything else to spend it on. Come on George Osborne find a few off-shore piggy banks to raise your taxes to give to the poor National Health and British Industry, the real capital workers a fair deal too. Please go to you will see the answers to your political questions like “John Bull’s Manifesto To Turn and Face the People”. No.2 MUM Cartoon. Listing their Duty’s a Politician should sign up to and be respected.

  • “my room mate Maria Is getting paid on the internet 98$/hr.”….i!578two days ago new Silver McLaren P2 bought after earning 18,512 Dollars,,,this was my previous month’s paycheck ,and-a little over, 17k Dollars Last month ..3-5 hours of work a day ..with. extra open doors &. weekly. paychecks… it’s realy the simplest. work. I have ever Do.. I Joined This 7 months. ago. and now making over. 87 Dollars, p/h.Learn. More right Herei!578➤➤➤➤➤ http://GlobalSuperJobsReportsEmploymentsTerrificGetPaidHourly98$…. .❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦:❖❖:❦❦::::i!578……..

  • This is one of the most worrying things I’ve seen from Labour since Corbyn became leader, since it suggests that even the “Blairite” side of the party has a problem with savings, because it’s “accumulating wealth”, and with parents helping their children, because it’s rewarding their children for being “lucky enough to be born into a better-off family”, rather than for “their own hard work and efforts.”

    It’s a position it’s easy to imagine Corbyn taking. He doesn’t, it seems, have any savings, or at least none that are visible in a tax return; and, it seems, he split from one of his wives rather than be part of having his son benefit from the luck of being born into a family that would accept a place at a selective grammar school.

    But how far does such reasoning go? Liz Kendall doesn’t indicate where any limit might be. She acknowledges that “the desire to pass on your home to your loved ones is completely understandable”, but she raises that only to dismiss it as “distorting life chances”, giving the lucky well-off a greater advantage, and harming the economy. She doesn’t give that understandable desire any role in determining what the level of tax should be.

    Indeed, if “passing down wealth” is wrong, because it “gives children who are lucky enough to be born into a better-off family an even greater advantage, rather than rewarding them for their own hard work and efforts”, and because “it is also harming our economy by entrenching inequalities that hold us all back”, then it’s also wrong for the children to get what’s left after taxes. That still rewards their luck rather than their own work and efforts, and it still entrenches inequalities. So should the rate for inheritance tax be 100%? Should there even be thresholds that mean the tax applies only above certain amounts?

    The luck vs own efforts problem is even greater than that, because many things are largely down to luck. It’s not only being born into a better-off family. Talent, for example, is largely a matter of luck. It’s something you’re born with, rather than the result of your own efforts. Having parents who are intelligent and well informed and who can help you understand things is luck too. And so on.

    I suspect that most MPs have benefited from luck somewhere along the way, and I wonder whether Liz Kendall would like to give up her £74,962 MP’s salary and live on minimum wage instead, to reduce inequality.

    In any case, it’s a shame that she resorted to such arguments, because the rest of what she says is good. At a time when cuts are being made in government spending, with the rationale of trying to reduce the deficit, any *tax cuts* should be aimed at helping those who need it most, or at building a more productive economy. It’s outrageous to aim cuts instead at helping those who are best off and least need it.

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