The proposal, put forward by green energy tycoon and Labour donor Dale Vince, has been formally submitted to both the Treasury and Downing Street’s policy unit for detailed consideration ahead of the Budget on October 28.

Mr Vince, who has given £6million to the party since 2013 through his company Ecotricity, warns in his Budget submission that wealth continues to be “taxed more lightly than work”.

The PM and Chancellor John Healey are also looking for ways to alleviate the cost of living crisis before an expected hike in energy bills in the New Year.

Bringing CGT rates into line with existing income tax bands would raise an estimated £14billion, according to the submission.

The remaining funding would come from scrapping interest payments on Bank of England reserves. Together, these measures could pay for lifting the tax-free threshold to £15,570.

This is just short of where the tax allowance would sit had it not been frozen since 2021 under the former Conservative Government.

Modelling carried out by the National Institute of Economic and Social Research (NIESR) suggests the £3,000 rise in the personal allowance would leave those in the bottom fifth of earners roughly £600 a year better off.

The overall cost to the Exchequer would be approximately £20billion. The proposals were submitted last week and have been directed to both the Treasury and No 10’s policy unit, where they will undergo thorough assessment.

Households across the country are bracing for rising bills, while state pensioners risk being pulled into the income tax net for the first time.

Before entering Downing Street, Mr Burnham acknowledged that the frozen personal allowance was “the thing I heard the most on the doorsteps” while campaigning in his Makerfield constituency.

Pressure is building from within his own ranks, with Cabinet ministers and union leaders alike urging swift action to ease the financial squeeze on working families.

The Prime Minister has previously said he was “looking at” raising the threshold, but warned the move was “difficult” and carried “significant consequences” for the public finances, adding that a final decision would come at the Budget.

Cabinet Minister Louise Haigh voiced her support in May, arguing that CGT should be brought closer to income tax rates to “shift the tax burden away from punishing work and towards unproductive capital accumulation”.

Defence Secretary Wes Streeting, once seen as a potential leadership rival to Mr Burnham, has also endorsed the principle, having previously declared that Britain needed “a wealth tax that works”.

Unite general secretary Sharon Graham last week called directly on the Prime Minister “to step in” by raising the allowance “to put more money in workers’ pockets”, adding the weight of Labour’s largest union donor to the campaign.

Andy Burnham Floats £14bn Capital Gains Tax Raid to Fund £600 Handout for Low Earners

Prime Minister Andy Burnham is facing growing pressure to ease the financial strain on lower-income households, amid reports that his government is examining proposals to raise Capital Gains Tax (CGT) and use the proceeds to increase the income tax personal allowance.

The proposal, which has been put forward by Labour donor and Ecotricity founder Dale Vince, could involve raising some capital gains tax rates to as much as 45 per cent. Supporters of the plan argue that wealth and investment income should not be taxed substantially more lightly than earnings from work. However, economists and tax experts have questioned how much revenue such a move would ultimately generate once taxpayers and investors changed their behaviour.

According to modelling commissioned by Vince from the National Institute of Economic and Social Research (NIESR), increasing the personal allowance by £3,000 could leave people in the lowest fifth of earners around £600 a year better off. The overall cost to the Treasury is estimated at about £20 billion.

The proposal would raise the personal allowance from its current £12,570 level to £15,570. Vince’s submission argues that additional revenue could come from bringing Capital Gains Tax closer to income tax rates, potentially generating around £14 billion.

The figures are central to a debate that is expected to intensify before the autumn Budget.

What is being proposed?

The proposal does not represent a confirmed government tax policy. Instead, it is a Budget submission that has reportedly been sent to the Treasury and Downing Street’s policy unit for consideration.

Under the plan, the personal allowance would be increased by £3,000. For taxpayers with sufficient earnings to benefit from the full allowance increase, this would mean less income being subject to income tax.

The NIESR modelling commissioned by Vince estimates that the lowest fifth of earners could gain approximately £600 a year from the change. The total cost, however, would be substantially larger because the personal allowance applies across the income tax system.

To help finance the measure, Vince has proposed reforms to Capital Gains Tax.

At present, individuals generally pay CGT at rates of 18 per cent or 24 per cent on taxable gains, depending on their income and circumstances. The annual exempt amount for individuals is £3,000 in the 2026-27 tax year.

The proposal under discussion would move some capital gains rates towards the existing income tax structure, potentially including rates of 40 and 45 per cent.

Its supporters argue that the change could raise significant sums while shifting part of the tax burden away from earned income.

Why £14 billion matters

The £14 billion figure comes from analysis associated with proposals for a broader reform of CGT. The argument is that capital gains can currently receive more favourable tax treatment than income generated through employment.

Vince has argued that the tax system should encourage greater disposable income among lower earners, saying that putting additional money into the hands of households more likely to spend it could support consumer demand and local economies.

His proposal also reportedly includes changes involving interest paid on Bank of England reserves as another potential source of funding.

However, the £14 billion should not be interpreted as a guaranteed Treasury saving or revenue increase. It is an estimate based on assumptions about how taxpayers would respond to higher CGT rates.

That distinction is important because capital gains taxation is particularly sensitive to behaviour.

The avoidance question

One of the main challenges facing the proposal is the possibility that investors could alter the timing or structure of transactions in response to higher tax rates.

If people expect CGT rates to rise, they may sell assets before the increase takes effect. Alternatively, they may postpone selling assets, restructure investments or make greater use of available reliefs.

Government figures cited in reporting suggest that increasing the higher CGT rate by 10 percentage points could actually reduce the amount raised over time because of behavioural responses.

This is why headline calculations of additional tax revenue can differ significantly from the amount ultimately collected.

Tax policy specialists have also pointed out that higher rates do not automatically translate into proportionally higher receipts.

The Chartered Institute of Taxation has noted that changes to CGT remain among the tax measures being discussed ahead of the October 2026 Budget, while emphasising that much of the current discussion is based on media reports and political proposals rather than confirmed policy.

Burnham’s personal allowance dilemma

Burnham has previously indicated that the frozen personal allowance is an issue he has been examining.

The £12,570 threshold has remained unchanged for several years. With wages rising over time, a frozen threshold means more income can become taxable even when tax rates themselves do not increase.

Before becoming Prime Minister, Burnham described the frozen allowance as an issue he heard repeatedly while speaking to voters in his Makerfield constituency. He subsequently said he was looking at the possibility of increasing it but warned that such a move would have significant consequences for the public finances.

That leaves the government facing a difficult choice.

Increasing the allowance would reduce the tax burden for millions of taxpayers. But the Treasury would have to identify a reliable way of replacing the lost revenue or accept a reduction in available funds.

The proposed CGT changes are one possible route, but they remain under discussion rather than being an announced policy.

Concerns from economists

The proposal has already attracted criticism from economists and tax specialists who question whether raising CGT would deliver the expected amount.

Some argue that higher taxes on capital could influence investment decisions, asset sales and the location of wealthy individuals and entrepreneurs.

A report on the proposal said economists had warned that the measure could fail to raise the projected £14 billion because of behavioural changes. Other concerns include the possibility that putting additional disposable income into the economy could increase demand at a time when inflation remains a concern.

These concerns do not necessarily establish that the proposal would fail. Rather, they highlight the uncertainty surrounding revenue estimates.

The final economic effect would depend on the precise design of the tax changes, the response of investors and businesses, and wider economic conditions.

What would happen to existing CGT?

Any increase would represent a significant change from the current system.

HM Revenue & Customs currently lists individual CGT rates from 18 to 24 per cent for the 2026-27 tax year, alongside a £3,000 annual exempt amount.

A move towards rates of 40 or 45 per cent would therefore represent a substantial increase for some taxpayers.

Supporters of reform argue that this would bring the taxation of investment gains closer to the taxation of earnings.

Opponents are concerned that such a gap-closing exercise could discourage investment or encourage taxpayers to reorganise their financial affairs.

The government would also have to consider the impact on entrepreneurs, investors and people selling businesses or other assets.

The wider Labour debate

The controversy comes as Labour prepares for its conference and as ministers approach the October Budget.

Vince, who has donated millions of pounds to Labour, is expected to campaign for the proposal among party members.

Other Labour figures have previously supported bringing CGT closer to income tax rates. Louise Haigh has argued for shifting some of the tax burden away from work and towards capital, while other senior Labour figures have previously expressed support for wealth-tax reforms.

At the same time, the government has sought to balance tax-raising measures with its wider ambitions for economic growth.

The Chartered Institute of Taxation has highlighted the broader uncertainty around the 2026 Budget, noting that possible changes to CGT and other taxes are being discussed while ministers have maintained commitments concerning several major tax rates.

No final decision has been made

For now, the reported £14 billion CGT proposal remains just that: a proposal.

A Treasury spokesman said tax decisions would be announced by the Chancellor at fiscal events rather than through responses to speculation or individual proposals.

That means the final Budget package could differ substantially from the ideas currently being discussed.

The government could choose to increase the personal allowance, alter CGT, adopt other tax measures, combine several approaches or reject the proposal altogether.

For lower-income workers, the attraction is straightforward: a higher personal allowance would mean more of their earnings could remain untaxed.

For investors, the implications would depend on the precise CGT changes and how those rules interacted with existing allowances and reliefs.

And for the Treasury, the central question will be whether the additional revenue estimated from CGT can actually be collected after accounting for changes in taxpayer behaviour.

As the October Budget approaches, the debate is therefore likely to focus not simply on whether the government wants to give lower earners a tax reduction, but on how that reduction would be financed and what economic effects could follow.

The proposed £14 billion figure has become a headline number in that debate. But until the Chancellor announces the government’s final policy, it remains an estimate attached to a proposal rather than a confirmed source of funding.

The coming weeks, particularly the Labour conference and the run-up to the Budget, are likely to provide further indications of whether the idea develops into formal government policy or remains one of several competing proposals for easing pressure on household finances.