Sir Tony Blair’s think tank has warned Andy Burnham against “taxing our way to prosperity” with a capital gains tax hike.

Makerfield MP Mr Burnham, widely expected to replace Sir Keir Starmer as prime minister in a matter of weeks, has faced calls to equalise capital gains tax with income tax to raise revenue.

But that would be “terrible policy” which would “send entirely the wrong signal” to entrepreneurs needed to drive innovation and growth, according to The Tony Blair Institute for Global Change.

Andy Burnham served in government under Sir Tony Blair (Sang Tan/AP

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Capital gains tax is a levy on the profits made after selling investments or assets, such as second homes or shares.

The annual amount of profit taxpayers can make before owing tax is £3,000, with anything above this taxed between 18% and 24%.

Bringing that in line with the three bands of income tax rate – 20%, 40% for higher rate taxpayers and 45% for additional rate taxpayers – could raise £12 billion a year, according to the Centre for the Analysis of Taxation.

But 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%.

“While everyone else is racing to attract entrepreneurial talent, we would be punishing them and making ourselves poorer as a result,” he wrote in The Telegraph, in an article Labour former prime minister Sir Tony is reportedly understood to back.

“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, in his first interview since Sir Keir announced his resignation, said 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.

The MP, who once served in Sir Tony’s government, told LBC there was room within the manifesto’s restrictions to increase taxes on warehouses to help high street businesses such as pubs.

Former health secretary Wes Streeting, who is tipped for Mr Burnham’s Cabinet after giving up his own leadership ambitions to back him, has called for capital gains tax to be aligned with income tax, alongside measures to protect real entrepreneurs.

Top Burnham backer Louise Haigh has also said capital gains tax should be brought closer to income tax rates.

Mr Burnham’s team has been contacted for comment.