X

Create an account to continue reading.

Registered readers have access to our blogs and a limited number of magazine articles
For unlimited access to The Spectator, subscribe below

Registered readers have access to our blogs and a limited number of magazine articles

Sign in to continue

Already have an account?

What's my subscriber number?

Subscribe now from £1 a week

Online

Unlimited access to The Spectator including the full archive from 1828

Print

Weekly delivery of the magazine

App

Phone & tablet edition of the magazine

Spectator Club

Subscriber-only offers, events and discounts
 
View subscription offers

Already a subscriber?

or

Subscribe now for unlimited access

ALL FROM JUST £1 A WEEK

View subscription offers

Thank you for creating your account – To update your details click here to manage your account

Thank you for creating your account – To update your details click here to manage your account

Thank you for creating an account – Your subscriber number was not recognised though. To link your subscription visit the My Account page

Thank you for creating your account – To update your details click here to manage your account

X

Login

Don't have an account? Sign up
X

Subscription expired

Your subscription has expired. Please go to My Account to renew it or view subscription offers.

X

Forgot Password

Please check your email

If the email address you entered is associated with a web account on our system, you will receive an email from us with instructions for resetting your password.

If you don't receive this email, please check your junk mail folder.

X

It's time to subscribe.

You've read all your free Spectator magazine articles for this month.

Subscribe now for unlimited access – from just £1 a week

You've read all your free Spectator magazine articles for this month.

Subscribe now for unlimited access

Online

Unlimited access to The Spectator including the full archive from 1828

Print

Weekly delivery of the magazine

App

Phone & tablet edition of the magazine

Spectator Club

Subscriber-only offers, events and discounts
X

Sign up

What's my subscriber number? Already have an account?

Thank you for creating your account – To update your details click here to manage your account

Thank you for creating your account – To update your details click here to manage your account

Thank you for creating an account – Your subscriber number was not recognised though. To link your subscription visit the My Account page

Thank you for creating your account – To update your details click here to manage your account

X

Your subscriber number is the 8 digit number printed above your name on the address sheet sent with your magazine each week. If you receive it, you’ll also find your subscriber number at the top of our weekly highlights email.

Entering your subscriber number will enable full access to all magazine articles on the site.

If you cannot find your subscriber number then please contact us on customerhelp@subscriptions.spectator.co.uk or call 0330 333 0050. If you’ve only just subscribed, you may not yet have been issued with a subscriber number. In this case you can use the temporary web ID number, included in your email order confirmation.

You can create an account in the meantime and link your subscription at a later time. Simply visit the My Account page, enter your subscriber number in the relevant field and click 'submit changes'.

If you have any difficulties creating an account or logging in please take a look at our FAQs page.

Coffee House

The government must cut or even scrap capital gains tax

26 February 2013

6:42 PM

26 February 2013

6:42 PM

When economists get things wrong– something rather easy, given the nature of their subject – they should admit that they got them wrong. Well, the Adam Smith Institute got it wrong. Two years ago we predicted that, if Vince Cable got his way and capital gains tax rates were increased to match income tax rates – up from 18 per cent to 40 per cent or even 50 per cent – the Treasury would not make anything out of it, and would actually lose £2.48bn in revenue.

In the event, CGT was not raised to 40 per cent or 50 per cent. But it was raised to 28 per cent from 18 per cent for most asset sales. (The entrepreneurs’ rate, designed to encourage people to build up lifelong businesses, remained at 10 per cent.) The result? The Treasury is about £4.9bn worse off than it was before. We were wrong, but only in terms of being far too conservative about the revenue losses that a tax hike would bring. It is time to bring CGT back down to more realistic levels – levels that would encourage people to invest in the UK and in UK businesses and maybe help get us out of our downrated, deficit-dominated doldrums.

The CGT rise came in on 23 June 2010 – unusually, 78 days into a financial year. That was how keen Vince & Co were on it. That is good and bad for economists, as it makes it possible to see how the receipts changed within the same year, though it does make the arithmetic a little trickier. What actually happened is that, on an annualised basis, CGT raised £8.2bn before 23 June 2010, and just £3.3bn afterwards. We told you so, though we didn’t tell you loud enough.

[Alt-Text]


I am sure that high-taxing ministers will brush off much of this difference by saying that because people could see the hike coming they decided to sell off assets before they got hit with the extra tax. And indeed, normal disposals were down 76 per cent after 23 June 2010. Perhaps more surprisingly, entrepreneurs’ rate disposals were also down by 34 per cent – meaning that even people running lifetime businesses got out before the tax changed, just in case they were hit too.

That indicates two things. First, just how far people will go to avoid this tax, particularly when it is levied at rates they feel are simply unfair. After all, much of the capital ‘gain’ that a long-term investor makes is simply inflation, and inflation has been running high for some time. People naturally resent paying tax on ‘gains’ that are not in fact real.

Second, it indicates just how far CGT is a voluntary tax. Very few people are forced to sell assets. If they figure that they will be socked by a big tax, and that the money they will get for their assets will keep losing its value, they will hold on to them, and maybe wait for a change of policy that brings in lower taxes and less inflation. The only people who are forced to sell assets are those like pensioners who build up lifetime savings and then need to sell them to fund their retirement, or expensive episodes of medical or social care.

So high rates of CGT are bad for the Treasury, bad for the ordinary saving public, bad for business investors – and therefore bad for the country. It is time to send out a message that the UK is committed to being a low-tax country, and reduce or even get rid of this damaging tax.

Eamonn Butler is Director of the Adam Smith Institute.

Give something clever this Christmas – a year’s subscription to The Spectator for just £75. And we’ll give you a free bottle of champagne. Click here.


Show comments
Close