Would a CGT rise trigger a housing crash?

27th May 2010

It was always a bit of a surprise in a month of surprises, when the Tory leadership gave up on increasing the IHT threshold and embraced many Lib Dem tax plans.

But in all the discussion, the acceptance of a Lib Dem idea to move capital gains tax close to the level of income tax including of course the top rate was the biggest surprise of all.

It seemed designed to hurt Middle Britain, or the more prosperous bit of it, right where it hurts the most, the wallet.

Those local post offices – due for part privatisation of course – look set to be very busy as the folk of the shires get writing irate letters to their local Conservative MPs probably starting with the sentence "I didn't vote Conservative in order to be taxed at punitive rates of…" 

You get the idea.

Indeed maybe you are penning one now. 

The going's got tough

Of course as our new Prime Minister and Deputy Prime Ministerial double act is fond of pointing out, things are going get tough and everyone is expected to make sacrifices in the coming years of austerity and cut backs.

Using the coalition to iron out some of the nuttier ideas from the Tory right may well have made sense to the modernising Cameron.

The whole ethos is that in the coming difficult years, everyone will have to pay their share.

The opposition to the CGT move comes from John Redwood MP. One of John Major's cabinet 'bastards' of course, he is therefore seen as a torch bearer for the right wing of the Conservative party.

He would not, we humbly submit, have won even most seats in the recent election, even up against Gordon Brown, had the party turned to him to lead it.

He was also expected to make trouble too.

He is a 'usual suspect'. That is why broadcast journalists are forever putting a microphone in front of him.

However those making easy jibes, might forget that Redwood is hyper-intelligent and brings knowledge of fund management and investment.

His proposals actually reek of, I struggle for the phrase – oh yes, common sense.

As well as fairness, one of the big things about this coalition is supposedly about personal responsibility. 

Don't get your assets in a twist

This particular writer is no flat taxer but believes that we have to move tax on to property and pollution and off savings, investments and jobs.

People who sit in the house they live in while the price goes up and think that that is saving are getting their 'assets in a twist'. 

That doesn't mean ignoring the fact that lots of thrifty people used all manner of vehicles to save and not always in a pension.

Redwood has actually proposed something that recognises this. He would tax longer term gains at lower rates so 2 year gains at 30%, three year gains at 20%, four years or more at 10%.I do not offer to analyse all the numbers and maybe it doesn't add up.

But it has a certain logic. 

As Redwood writes: "It would send a strange signal if a Lib/Con government decided to more than double the CGT rate set by a Labour government. It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good."

This time definitely, I agree with the thrifty and logical Vulcan.

Click here for his full letter to the Treasury

 

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