Sir Tony Blair‘s think tank has warned Andy Burnham against hiking capital gains tax (CGT). Sir Keir Starmer’s likely successor is reportedly considering aligning the levy, which is paid on profits from selling assets such as second homes or shares, with income tax.

But the Tony Blair Institute for Global Change said it would be a “terrible policy” that would “send entirely the wrong signal” to entrepreneurs needed to boost innovation and growth.

The annual amount of profit taxpayers can make before owing tax is currently £3,000, with anything above this taxed between 18% and 24%. But that would increase to 20%, 40% or 45% if it is brought up to the same level as income tax.

Guy Ward-Jackson, a senior analyst at Sir Tony’s institute, warned against giving the UK the highest top capital gains rate in Europe at 45%.

He wrote in The Telegraph: “While everyone else is racing to attract entrepreneurial talent, we would be punishing them and making ourselves poorer as a result.

“To be a prosperous country, Britain sorely needs long-term investment and the willingness to back new businesses, technologies and ideas.

“We must be a place where entrepreneurs feel they can take risks, build companies, and be rewarded for it – all the while contributing to jobs and growth.

“Increasing capital gains tax to the level of income tax would undermine those incentives and send entirely the wrong signal.”

Mr Ward-Jackson argued the UK’s “economic problem is, at its core, a risk-aversion crisis”, with capital gains tax relief “one of the few mechanisms that helps correct” UK founders’ disadvantage compared to their American counterparts, acknowledging “that investing or building a start-up means taking a huge risk and waiting years for a return”.

Mr Burnham said last week that there was room for movement on tax despite pledging to keep Labour’s 2024 manifesto commitments not to increase workers’ income tax, National Insurance or VAT rates.