John Healey risks Labour civil war as Chancellor warned Budget 'could do more damage' than Rachel Reeves

John Healey is at risk of igniting a Labour civil war after being forced to rule out a hike to capital gains tax.

GB News understands the Chancellor will not increase the levy on taxable profit in his first Budget since entering No11.

The decision puts Mr Healey at odds with Defence Secretary Wes Streeting and Deputy Prime Minister Louise Haigh.

However, the Chancellor will also face grumblings from the Labour backbenchers after hundreds of MPs backed a resolution to increase the rate to 24 per cent in 2024.

Despite pressure to plug a growing financial black hole, Mr Healey also faced warnings that it could spark an investor exodus and hamper economic growth if wealthy people leave the country or defer selling off assets.

Capital gains tax applies to profits from selling assets, including a house or shares.

Labour introduced the levy at a flat rate of 30 per cent in 1965, with the Tories bringing the charge in line with income tax in 1988.

Rachel Reeves increased the main rates for most assets from 10 per cent to 18 per cent for basic-rate taxpayers and from 20 per cent to 24 per cent for higher-rate taxpayers.

Lord O'Neill of Gately, who has advised Mr Burnham and worked on the Northern Powerhouse project, told The Times: "Raising capital gains tax would send very much the wrong message to business."

However, the Treasury is now expected to raise revenue by targeting Britain’s banking sector.

Mr Healey is poised to impose a levy on lenders after the UK’s four largest banks generated bumper pre-tax profits.

HSBC, NatWest, Barclays and Lloyds Banking Group have recorded £200billion in pre-tax profits over the past five years alone.

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However, experts warn Mr Healey's lender levy risks costing the UK economy £20billion.

Tory leader Kemi Badenoch claimed the Chancellor's proposed tax raid risks being worse than measures introduced by his predecessor, Rachel Reeves.

Speaking at an event in Central London, Mrs Badenoch said: "John Healey is not Rachel Reeves, and many people see that as an improvement.

"How could anyone do worse than £70billion in new tax rises across just two Budgets?

"However, I think that next week, John Healey will deliver a Budget that does just as much damage to our country as Rachel Reeves did. In fact, it could be even worse."

She added: "We are being told next week’s Budget is going to be ‘nothing to see here’.

"That’s Whitehall code for a Budget that tries to do as little as possible­... in the hope no one notices."

Mr Healey confirmed Labour was looking to prioritise wealth creation without it being constantly subject to penalties.

In a keynote speech last month, the Chancellor said: “I recognise that the cost of business – that’s energy bills, regulation burdens, planning constraints, labour costs – have grown since Covid. And I want to draw the line."

He added: “I want to see this country as a country of wealth creation. I want our government decisions and policies to raise the levels of confidence and investment and profit in British business.”

Mr Healey will deliver his first Budget as Chancellor on October 28.

A Treasury spokesman said: "As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals."