Tax and testing the Lib-Con coalition
It should come as no surprise that tax – in this case capital gains tax – should prove the first major test of the Lib-Con government.
Rebel Tory MPs and Peers, led by John Redwood, have announced they will oppose the planned changes to CGT in the coming emergency Budget.
Interesting that given that all we know is that the rate, on non-business assets is likely to go up, possibly to the same levels as income tax.
There are no firm plans, no structure announced, no definition of the assets to be affected set. In fact we know precious little about what George Osborne, the chancellor, plans to do.
So Redwood and his gang seem to have decided to get their retaliation in first.
As I said, this is no surprise. What was surprising was that Tory and Lib Dem negotiators were able to quickly settle their CGT route for the coalition. Lib Dems had a rate rise in their manifesto – the Tories steered well clear of doing anything with CGT, up until the hung parliament.
More surprising is Redwood’s need to get the fight over CGT out in the open and in the papers before the plans are actually published. Perhaps the reasons run a little deeper than just having the right CGT policy. After all this is, whether it was the intention or not, now messing with the very fabric of the coalition itself.
Redwood proposes an alternative system involving a graduated system that would reward investors who hang onto assets long term with lower rates. Indeed he suggests a 10% rate for those who hang onto assets for four years and beyond.
To be perfectly honest that doesn’t seem particularly long term, its lower than the current rate of 18% and doesn’t seem to address the issue of those who convert income into capital to take advantage of the lower rates.
Not sure any of that would be to the liking of the more radical Lib Dem tax agenda.
One thing is for sure – the Lib Cons are looking increasingly like they should be consulting properly on what they do with CGT, not just rushing in change.
But in the mood they appear to be in, can we really expect it?