Think-tank: CGT hike won’t make tax fair

A LEADING economic think tank has rubbished the coalition government’s claims that proposals to alter capital gains tax (CGT) would improve the fairness of the UK’s tax policy.

Business secretary Vince Cable yesterday told the Commons that the reforms would “lift very large numbers of low-earners out of tax” and “make the tax system fairer”. But the Adam Smith Institute (ASI) has published a report into the effects of increasing CGT to levels in line with income tax rates – a proposal it estimates could cost the UK economy between £3.2bn and £5.2bn, and lead to over 60,000 people losing their jobs.

“The idea that one should increase CGT in the name of ‘fairness’, irrespective of its effect on revenues and the wider economy, is predicated on a fundamental misconception: that CGT is paid primarily by the rich,” the ASI said in its report, which analysed the effects of past changes to CGT rates on tax revenues across the globe.

“Intending to tax the rich, politicians, without understanding the effects of their actions, are proposing measures which will decrease the Treasury’s tax take, harm the capital base on which the economy’s future depends, and simultaneously punish poorer and older people,” the institute added.

This newspaper is currently running a campaign against the government’s CGT proposals, arguing that such a move will strike a hammer blow to enterprise and long-term investment in the UK economy.

The campaign has so far won the support of influential City figures such as Seymour Pierce boss Keith Harris and Tullett Prebon chief executive Terry Smith.

Cable added yesterday that any eventual reforms to CGT, which are likely to be formalised at the Budget on 22 June, would “acknowledge the role of entrepreneurship and not damage it”.