From the TUC

Budget: Any gains on Capital Gains Tax?

22 Jun 2010, by Guest in Economics

So, the Lib Dems got their sop capital gains tax increase. And George Osborne got the last word. The capital gains tax rate for those on higher rates of tax has been increased to 28% – but not to be in line with income tax rates. That, Nick Clegg will hope, may be enough to keep his backbenchers in line.

But at the same time there was no reduction in the annual allowance for the tax – which at over £10,000 per annum is far more generous than that for income tax, especially as it is, in effect, completely transferable between married couples and civil partners. And entrepreneurs – the funders of the Conservative party – get a massively increased exemption so they can make £5 million during their lifetimes and pay this tax at only 10% on it.

Will this close the whole raft of tax avoidance problems highlighted by the TUC in The Missing Billions and now acknowledged to exist by George Osborne? The simple answer is no, it won’t. The incentive to tax avoid – especially between married couples will be increased by these measures because there are now higher and lower rates for the tax. And the opportunity to raise tax at higher rates has been foregone.

Osborne claimed that was because he’d been advised that if the capital gains tax rate was as high as 40%, the tax yield would go down. This is the first ever claim by a UK Chancellor that the Laffer effect exists in UK taxation at rates below 30%. Laffer said as tax rates rise total tax collected falls. But Osborne’s wrong. There’s no doubt at all that, having allowed for recessionary impacts, there is no Laffer effect to be found in UK CGT yields after previous increases. In that case the politicisation of the tax system continues as a result of this announcement.

And that is really worrying because it now makes clear that whenever think tanks yell “Laffer” in the future their call will be heeded. This government did at a stroke indicate that it has no appetite at all to tax the richest and most able to pay in our community. It’s hard in that case to see how this could ever be called a progressive budget.

2 Responses to Budget: Any gains on Capital Gains Tax?

  1. Tweets that mention Budget: Any gains on Capital Gains Tax? | ToUChstone blog: A public policy blog from the TUC —
    Jun 22nd 2010, 3:13 pm

    […] This post was mentioned on Twitter by ToUChstone blog, ToUChstone blog. ToUChstone blog said: @RichardJMurphy writes for us on the real implications of the #budget Capital Gains Tax announcement: […]

  2. RichB
    Jun 22nd 2010, 5:00 pm

    Wow. Can you say cognitive dissonance? You’re complaining (simultaneously!) that the coalition raised CGT, but, also, that they didn’t raise it enough.