UK: EDITORIAL - A CHANCE FOR A CANNY CHANCELLOR.

UK: EDITORIAL - A CHANCE FOR A CANNY CHANCELLOR. - At every budget, commentators speculate on the possible abolition of Capital Gains Tax. CGT generates tiny revenues, it is complicated to administer, relying on complex indices for its calculation and it

by Charles Skinner, Editor.
Last Updated: 31 Aug 2010

At every budget, commentators speculate on the possible abolition of Capital Gains Tax. CGT generates tiny revenues, it is complicated to administer, relying on complex indices for its calculation and it is usually so easy to avoid as to be effectively optional. Worst of all, it is a tax that works directly against efforts to create an 'enterprise economy'. One of the most dismal spectacles is the emigration of successful entrepreneurs upon the sale of their companies. Time and again, these proven wealth creators (and their capital) leave the country solely to keep the sale proceeds from the taxman. Even those who remain find that the shenanigans involved in circumventing the tax charge make it difficult to use the capital for further projects.

It would be less painful if the abolition of CGT was an area of ideological debate, but all the major parties are supposedly committed to encouraging entrepreneurship. Making those entrepreneurs who succeed undergo contortions to avoid a tax which no one wants them to pay hardly smacks of such commitment.

The reason why neither politicians nor the Treasury has done away with the tax is one of practicality rather than ideology: capital gains tax remains in place to ensure that income tax revenue is preserved. Without CGT, it is feared that there would be too many loopholes for taxable income to be transmuted into untaxed capital gain. Because of this any change has been consigned to the 'Too Difficult' folder.

What this has created is an exceptional opportunity for any aspirant legislator, particularly in an incoming Labour administration. Whoever can put in place a workable structure which enables CGT to be abolished generally, or even specifically for those who have built up their own business, will be sending a clear message about their genuine commitment to commercial enterprise. Such a move could boost the pro-business credentials of a canny chancellor to such an extent that taxes might be raised from other more lucrative sources with impunity.

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