Goldman Sachs boss warns London’s financial status is ‘fragile’ as Chancellor faces £30bn Budget black hole
Chancellor Rachel Reeves’ capital gains tax increases have backfired spectacularly, with receipts plummeting by £1.7 billion in the first half of 2025 despite higher rates imposed at last year’s Budget.
The tax take from CGT fell to £11.8 billion between January and June, down from £13.5 billion during the same period in 2024, according to the latest HMRC figures. The dramatic shortfall comes as the Chancellor faces mounting pressure to fill an estimated £30 billion black hole in the public finances ahead of the Autumn Budget.
Goldman Sachs chairman and chief executive David Solomon has now warned that London’s status as a global financial hub is “fragile” and risks being undermined by poor tax policy that drives talent and capital away.
Tax Hikes Fail to Deliver
The Chancellor increased the lower rate of CGT from 10 per cent to 18 per cent and the higher rate from 20 per cent to 24 per cent at the October 2024 Budget, with changes taking immediate effect.
Despite Treasury forecasts that the increases would raise £90 million in 2024-25 and £1.44 billion in 2025-26, the actual receipts for 2024-25 were around £200 million lower than the Office for Budget Responsibility had anticipated.
Shaun Moore, tax and financial planning expert at investment firm Quilter, said: “The government’s decision to slash capital gains tax allowances and hike rates has backfired.
“The policy may have been designed to raise revenue, but it’s instead prompted behavioural shifts that have dented the tax take.”
Annual CGT revenues have been in steady decline, falling from around £17 billion in 2022-23 to £14.5 billion in 2023-24 and just £13.1 billion in 2024-25.
Financial Hub Under Threat
In a stark warning to the government, Goldman Sachs’ David Solomon told Sky News presenter Wilfred Frost’s The Master Investor Podcast that talent in the financial industry was “much more mobile” than 25 years ago.
“London continues to be an important financial centre. But because of Brexit, because of the way the world’s evolving, the talent that was more centred here is more mobile,” Mr Solomon said.
“We as a firm have many more people on the continent. Policy matters, incentives matter.”
The investment bank chief revealed that Goldman Sachs had grown its Paris office from 80 people a decade ago to 400 today, with employees now able to choose between London, Paris, Frankfurt, Munich, Italy and Switzerland.
“I’m encouraged by some of what the current government is talking about in terms of supporting business and trying to support a more growth oriented agenda,” he added.
But if you don’t set a policy that keeps talent here, that encourages capital formation here, I think over time you risk that.
Mr Solomon cautioned that the status of the City of London was “fragile” and could “fray” if not treated with care.
£30 Billion Black Hole Looms
The Chancellor’s fiscal challenges are mounting rapidly. Analysts suggest Ms Reeves faces a funding gap of up to £30 billion at the Autumn Budget, with the Institute for Fiscal Studies warning that tax increases might need to be on a similar scale to the record £41 billion hike imposed last year.
The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed the biggest single package increase on record.
Labour has ruled out increasing income tax, employee national insurance or VAT, leaving the Chancellor with limited options to raise revenue.
Ms Reeves again refused to rule out a wealth tax yesterday, with backbenchers floating a percentage charge on assets to raise billions of pounds a year.
Lord Kinnock, who led Labour between 1983 and 1992, has suggested ministers were looking at a 2 per cent levy on assets worth more than £10 million, which could raise up to £11 billion annually.
Wealthy Already Fleeing
The warnings come as evidence mounts that wealthy individuals are already leaving the UK to avoid increasing tax burdens. Inquiries about leaving the UK in the first three months of this year were nearly three times higher compared with the same period in 2024, according to Henley and Partners, which provides global relocation services.
High-profile defectors include top Goldman Sachs banker Richard Gnodde and British property tycoons the Livingstone brothers.
Mr Moore warned that while taxing the wealthiest may sound politically appealing, the CGT experience shows that “people will change behaviour or adjust their financial plans to mitigate the tax bills.
The Office for Budget Responsibility has already downgraded its five-year CGT forecast by £23 billion in a report published alongside the Spring Statement, with downgrades ranging from £2.4 billion to £5.5 billion annually.
Limited Options Ahead
Despite the revenue shortfalls, CGT receipts are still expected to almost double over the next five years – from around £13 billion in 2024-25 to £26 billion in 2029-30.
However, economists have argued that Ms Reeves will struggle to avoid further tax hikes in the 2025 Autumn Budget, particularly given high borrowing costs, weak economic growth, and urgent spending requirements.
James Smith, developed markets economist at financial institution ING, said: “In the absence of further upgrades to GDP growth or a fall in gilt yields, we think this is likely to necessitate further tax hikes.”
Ben Zaranko, senior economist at the IFS, warned: “If growth forecasts are downgraded again and welfare spending continues to rise, you could comfortably be looking at a £20 to £40 billion Budget.”
The strain has been worsened by a series of U-turns on welfare, with last week’s decision to scrap cuts to Personal Independence Payments potentially costing up to £6 billion.
As pressure mounts from within Labour for wealth taxes and other revenue-raising measures, the Chancellor faces an increasingly difficult balancing act between fiscal necessity and the risk of driving more wealth creators out of the country.
The experience with CGT suggests that aggressive tax increases on the wealthy may prove counterproductive, leaving the Treasury with even bigger holes to fill.
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Image Credit:
The Chancellor of the Exchequer and the Secretary of State for Defence hold a roundtable with the Defence & Economic Growth Taskforce – Photo by HM Treasury, licensed under CC BY 2.0, via Wikimedia Commons.
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