WASHINGTON, D.C. — The UK Treasury’s decision on Thursday to reject calls from Prime Minister Keir Starmer’s office to equalise capital gains tax with income tax sparked a sharp reaction in global markets, with the FTSE 100 slipping 1.2% and investors reassessing risk exposure.

Labour’s fiscal plan, unveiled in March, would raise the top rate on capital gains from the current 28% to 45%, matching the highest income‑tax band. “A level playing field for earnings and investment returns is essential for fairness,” said Labour peer Lord McNicol, a former Treasury adviser. Senior figures in the party have publicly backed the proposal, arguing it would curb wealth inequality.

London’s benchmark index fell 1.2% on the news, while the U.S. S&P 500 edged up 0.3% after the Federal Reserve released minutes indicating that policy rates will likely stay at the 5.25%‑5.50% range through the year. Analysts noted the divergence, with some investors moving funds into U.S. equities as the UK’s tax outlook appeared less predictable.

Venture‑capital firms warned that a 45% capital‑gains rate could deter high‑net‑worth individuals from backing early‑stage startups. “We may see a slowdown in seed‑stage financing if the tax environment becomes punitive,” said Sarah Patel, partner at venture fund Apex Capital. The British Business Bank reported a 12% drop in new angel investments in the last quarter, a trend some attribute to tax‑policy uncertainty.

Entrepreneurial groups, including the Confederation of British Industry, voiced nervousness, urging the government to reconsider. “Policy stability is as important as the rate itself for attracting long‑term capital,” said CBI chief executive Tony Danker. The Treasury said it will review the proposal in the next fiscal statement, leaving the final decision pending.

Key Takeaways

• The Labour proposal would increase the top capital gains tax rate to 45%, aligning it with the highest income‑tax bracket.
• FTSE 100 fell 1.2% after the Treasury’s rejection, while U.S. equities rose modestly amid steady Fed rates.
• Investors warn that higher CGT could shrink venture‑capital funding and dampen startup activity in the UK.

With the fiscal debate unresolved, markets will monitor both the UK’s next budget statement and the Fed’s forthcoming policy guidance for clues on how capital flows may adjust in the coming months.