Capital gains tax is the UK's perennial almost-reform. The logic for equalising CGT with income tax rates is intellectually settled — the IFS Mirrlees Review recommended it in 2011, and the coalition stretching from the TUC to CenTax to the Resolution Foundation agrees. Yet every chancellor reaches for the rate lever while leaving the structural base untouched, producing a system that is simultaneously too high for investors and too porous for the wealthy. The numbers tell the story of half-measures. Rachel Reeves nearly doubled the basic CGT rate from 10% to 18% and pushed the higher rate to 24%. HMRC's take jumped 89% in 2024-25. But the UK's CGT rates already sit above the OECD average of 20%, and the absence of base reforms means the system leaks: inherited assets remain exempt, there's no exit tax for departing wealth, and no investment allowance to distinguish productive capital from passive appreciation. Prof Arun Advani at CenTax has laid out the package that would make a rate hike coherent: an exit tax, removal of the inheritance exemption, and an investment allowance so CGT is only levied on gains above the general rate of asset inflation. This isn't radical — it's textbook tax design that has been sitting on the shelf for fourteen years since Mirrlees. The political economy is what keeps the shelf stocked. Comprehensive reform is complex, creates losers who scream louder than winners who benefit diffusely, and takes legislative bandwidth. A simple rate hike fits in a single budget line. Reeves chose the easy path in 2024; Healey faces the same temptation in 2025, with the added pressure of energy-driven borrowing costs and an OBR forecast that may demand immediate revenue. The business lobby's objections deserve honest scrutiny rather than reflexive dismissal. The British Chambers of Commerce warns that repeated CGT speculation compounds uncertainty for anyone looking to invest, grow, or sell a business. This is a real friction cost — not the rate itself, but the constant signalling that it might change again next budget. Entrepreneurs cannot plan around a tax regime that shifts annually. The deeper extraction pattern is structural: work income is taxed at higher rates than capital income, which means labour subsidises wealth accumulation. Equalising rates without fixing the base risks a worst-of-both-worlds outcome — punishing genuine entrepreneurs while failing to capture gains from passive asset-holders who restructure around the new rates. The carried interest rate at 32% for City fund managers hints at this asymmetry: specific carve-outs multiply as the headline rate rises. Healey's October budget will reveal whether this government treats CGT as a revenue dial or a systemic reform opportunity. The manifesto promise protecting income tax, NI, and VAT constrains his options. With CGT raising roughly £22bn against income tax's £330bn, even a dramatic hike is a rounding error unless the base is reformed to prevent avoidance. The fourteen-year gap between the Mirrlees recommendation and actual implementation is itself the story: the UK knows what good tax design looks like and consistently chooses not to implement it.
