Former health secretary Wes Streeting has backed a “wealth tax that works” as part of his pitch to be Labour leader and win over the left wing of the party.
The proposal would see capital gains tax equalised with income tax, as Mr Streeting insisted the current system is not fair and penalises work.
The MP’s intervention comes a day after he warned in his resignation speech that Labour must change course or risk handing Reform UK power.
Mr Streeting quit the cabinet last week calling on the prime minister to go and making clear he intends to stand in any leadership contest to replace Sir Keir.
Speaking to the BBC on Wednesday, Mr Streeting said: “A member of my family is a cleaner in Lancashire. She pays a higher tax rate on her salary than her landlord pays for the growing value of the home she lives in.
“She slogs her guts out, he puts in far less effort, yet the state rewards him more than her.
“And we wonder why people are angry. The system is penalising work. It’s not fair and it’s bad for our economy. We need a wealth tax that works.
“A pound made from simply owning assets should not be taxed less than a pound made from a hard day’s work.”
He added: “The wealth gap in this country has widened. The opportunity gap in this country is widening. And the gap between earned income and unearned income has also widened.”
Mr Streeting’s latest intervention will be seen as a bid to win over the left wing of the Labour Party - many of whom see the former health secretary as being too right wing to take over the Labour leadership - and see off the threat from Andy Burnham, who is currently attempting to return to Westminster and challenge Sir Keir.
There have been growing calls for a wealth tax from left-wing Labour MPs, while polling conducted earlier this year revealed that 91 per cent of party members think the government should tax the rich more.
At present, higher or additional rate taxpayers pay 24 per cent on gains they make in the current financial year.
But he faced a backlash from a former Treasury minister who advised Rachel Reeves, Jim O’Neill.
Lord O’Neill told The Independent he was “very disappointed” at Mr Streeting’s call, adding: “I think he is wrong.
“We need to be stimulating and supporting genuine risk taking. Venture is exceptionally risky and it certainly shouldn't be taxed the same way as other forms of investment and finance, nor income tax.” He added that it was “not a good idea” for a nation “trying to boost its growth trend.”
Under Mr Streeting’s proposal, that would be equalised with the income tax rate of 40 per cent for higher rate taxpayers and 45 per cent for additional rate taxpayers.
He vowed to do it alongside measures to protect real entrepreneurs – with lower capital gains tax rates for those taking risks building companies – and long-term investment to boost economic growth.
The package would also close the loopholes he said people use to disguise income from work as capital gains, such as establishing personal service companies or taking pay in shares.
The plan could raise up to £12bn a year, he said, pointing to calculations by the Centre for the Analysis of Taxation.
The plan has been backed by tax expert Dan Neidle who described it as a “good proposal” for a tax which is simultaneously too high and too low in his opinion.
He said: “The problem is that it's too easy for people to convert income (taxed at top rate 45%) into capital gains (top rate 24 per cent). The rate is too low, unjust and also distortive. It is an incentive to lock cash up in companies (looking to eventually make a capital gain) which is bad for growth.
“A sane tax system has the same rate of tax in income and capital but only taxes real gain.”
He noted that Margaret Thatcher’s most famous chancellor Nigel Lawson took the same view.
“CenTax have done detailed numbers on this. You can boost long term investment AND raise significant sums from small number of wealthy people converting labour income into capital,” he said.
“The Streeting proposal is less purist than CenTax's because it has a lower rate for entrepreneurs. That answers the criticism that the proposal would disincentivise entrepreneurship.”
In the same interview with the BBC, Mr Streeting insisted he would “never forget” his roots after growing up on a council estate in east London.
“I've never forgot my roots. I'm proud of my roots”, he said. “I wish that at times when I was growing up, that life wasn't as hard as it was. And I don't want it to be that hard for other kids now.
“And the tragedy in our country today is the kids that I represent in my constituency on the London-Essex border, the council flat that I wanted to escape when I was growing up, those kids now aspire to.
“Because they're not in a council flat. They're in grotty temporary bed and breakfast accommodation. And the kicker is that we are paying about 3 billion quid a year for the privilege of putting these kids in grotty accommodation that stunts their development, their life chances, their opportunities.”
