Could Reeves hit the UK with the most punishing capital gains tax in Europe?

“We have no plans to raise capital gains tax,” came the reply as Rachel Reeves was quizzed on her tax plans on the campaign trail in June.

It was a phrase that, at face value, struck a soothing tone with voters. Reeves and her lieutenants had just spent 18 months wooing financiers and City bigwigs and her comments seemed to settle nerves that a shock raid was coming.

In reality, the shadow Chancellor has kept the door ajar for what looks to be a bruising budget for Britain’s wealthy in October. She may have had no plans to hike the levy in June, but it looks as though that line no longer holds.

Capital gains tax is seen as one of the likely levers that Reeves and Starmer will pull in October to fill the alleged £22bn “black hole” left by the previous government this autumn. The Chancellor has reportedly instructed officials to begin drawing up plans to ramp up the rate to as high as 45 per cent.

Some 369,000 people pay capital gains, so it is seen by Labour as an effective way of boosting tax-take while impacting a small portion of the electorate. It would also, in theory, allow Labour to keep its pledge of not raising taxes on “working people”.

The Chancellor this week refused to rule out hiking the rate three times, saying only: “I’m not going to write a budget two months ahead of delivering it.”

“We’re going to have to make difficult decisions in a range of areas,” she added.

Currently, the rate of capital gains sits at 20 per cent on all chargeable assets other than residential property, where the charge is 24 per cent. Investment fund managers pay a rate of 28 per cent on so-called carried interest, which Labour has already said it will raise.

At its most extreme, Reeves could lift capital gains in line with the top rate of income tax at 45 per cent. Such a move could potentially bring in around £16.7bn to the Treasury, according to the Institute for Fiscal Studies.

However, it would also make the UK the most punishing place in Europe for capital gains tax, taking it beyond Denmark at 42 per cent.

The City has already been sounding the alarm.

“It would be the death of the City and entrepreneurialism,” Alasdair Haynes, the boss of challenger stock exchange Aquis, told City A.M. earlier this year.

“We have a huge number of entrepreneurs in this country, you would absolutely kill them dead if you decided to do that.”

There are fears the hike could trigger an exodus of entrepreneurs and eat away at one of the key incentives to starting a business: the money to be made in selling it.

“If you hammer value creators, then you’ve got no hope in hell of achieving your growth agenda,” Lisa Gordon, chair of investment bank Cavendish, told City A.M. this week. “And I am supportive of their policies generally – so I’m just saying, don’t score an open goal.”