Question proposed, That the clause stand part of the Bill.

With this it will be convenient to consider the following:

Schedule 1.

Clauses 8 to 11 stand part.

Schedule 2.

Clauses 12 stand part.

New clause 1—Impact assessment: capital gains tax—

“The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before Parliament a review of the impact of the measures contained in clauses 7 to 12 and schedules 1 and 2 of this Act, on—

(a) long-term investment;

(b) disposable income across different income deciles, and

(c) tax revenue.”

This new clause would require the Government to produce a report setting out the impact of changes to Capital Gains Tax made in this Act on investment and the disposable income of taxpayers across different income deciles.

New clause 4—Section 12: review—

“The Chancellor of the Exchequer must, within three months of this Act coming into force, publish a review of the expected impact of the measures in section 12 of this Act on—

(a) the timing of asset disposals or transactions;

(b) shifting between different assets;

(c) shifting between gains and income;

(d) tax planning;

(e) migration; and

(f) non-compliance by non-payment, misreporting or underreporting of chargeable assets, gains or income.”

New clause 5—Business asset disposal relief: review of increase in rate—

“(1) The Chancellor of the Exchequer must commission and publish an assessment of the expected impact of the provisions of section 8 on the number of Business Asset Disposal Relief claims involving the sale of a business.

(2) The assessment must compare estimates for the number of claims involving the sale of a business in the tax year 2024-25 with the number of such claims in the tax year 2025-26.

(3) The assessment must compare the impact under the provisions of section 8 with what impact could have been expected had the rate remained unchanged”.

Since 2010, the UK has experienced low productivity, rising debt levels and declining public services. Public sector net debt is at its highest since the early 1960s, at 98.5% of GDP. Per capita, GDP remains lower that before the covid-19 pandemic.

In July this year, the Government uncovered a challenging fiscal and spending inheritance, with a £22 billion in-year pressure in the public finances. The Office for Budget Responsibility’s review into March’s spending forecasts concluded that had the information that has since been shared by the Treasury been made available to it at the time of the March Budget, there would have been a materially higher departmental expenditure limits forecast for 2024 to 2025. This was the result of the previous Government not factoring in the impact of a series of new, challenging pressures on the public finances, not taking the difficult decisions needed to address these pressures, and instead making a series of commitments that they could not fund.

This Government are committed to fixing the foundations and delivering a decade of national renewal. To do so, we must turn the page and take a different approach. In the autumn Budget, the House will have heard the Chancellor set out the Government’s first steps to repair the public finances, by taking the tough decisions needed to address the £22 billion in-year pressures to avoid further damage to our public services, including securing £5.5 billion of savings.

We are also putting in place significant reforms to strengthen our fiscal and spending framework that will improve certainty, transparency and accountability, and ensure that the situation can never happen again. This Government are taking the tough decisions on tax, spending and welfare that are necessary to repair the public finances and restore economic and fiscal stability. Those choices are not easy, but they are transparent, they are responsible and, with such a difficult position, they will ensure that the Government can deliver on our commitments not to increase taxes on working people.

The changes to the main rates of capital gains tax in clauses 7 to 11 will help to address the gap in public finances while retaining the UK’s internationally competitive investment climate. The new rates are revenue-maximising in the current design of the tax system, generating an additional £8.9 billion over the forecast period. The UK’s headline CGT rates will remain lower than those of France, Germany and Italy, and the highest rate is still lower than it was between 2010 and 2016. The new rates will mostly affect people who earn income from selling financial assets. The Government are taking the difficult but responsible decision to ask that group to pay a little bit more tax in order to restore economic stability.

Clause 12 represents the first step in a package of reforms to the taxation of carried interest by increasing the applicable rates of capital gains tax to 32% for carried interest arising on or after 6 April 2025. The reforms will put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.

I will begin with clauses 7 to 9, concerning the capital gains tax package. CGT is charged on individuals’ annual capital gains, net of losses and allowable costs. Less than 1% of adults pay CGT per year. There are lower rates available for reliefs, including business asset disposal relief and investors’ relief. CGT has an annual exempt amount of £3,000 for individuals, which keeps people with lower levels of capital gains out of the system.

To repair the public finances and help raise the revenue required to increase funding for public services, the Government are increasing the main rates of CGT. The clauses will increase the lower main rate of CGT from 10% to 18% and increase the higher rate from 20% to 24%. Those changes affect disposables made on or after 30 October 2024. The clauses also increase the CGT rate at which business asset disposal relief and investors’ relief are charged in a phased way from 10% to 14%, effective from 6 April 2025, and from 14% to 18%, effective from 6 April 2026. Phasing in the rate increases for those CGT reliefs demonstrates the Government’s commitment to a predictable tax system.

The Government accept that for some entrepreneurs, a lower CGT rate will be factored into their plans for exiting the business, which can be a once-in-a-lifetime event. Although it is right to increase CGT rates to raise revenue, it is also fair to give business owners some time to adjust. The changes will raise £2.5 billion per year by the end of the forecast period, while ensuring the UK’s headline CGT rates remain below those of France, Germany and Italy.

Turning to clause 10, investors’ relief offers access to the lower rates of CGT on the disposal of qualifying unlisted shares. Its objective is to provide the financial incentive for individuals to invest in unlisted trading companies over the long term and help companies in accessing other forms of investment. The lifetime limit for investors’ relief was previously £10 million, compared with business asset disposable relief’s lifetime limit of £1 million. We feel that that disparity in lifetime limits is unfair towards entrepreneurs and could encourage harmful tax planning strategies. The changes made by clause 10 will reduce the lifetime limit for investors’ relief to match that of business asset disposal relief at £1 million of qualifying gains per person. Investors’ relief has received little take-up since its introduction in 2016, and so the Government expect that the measure will affect a very small number of individuals.

Turning to clause 11 and schedule 2, which introduce transitional arrangements and anti-forestalling rules, the transitional arrangements are consistent with similar rules put in place when CGT rates were charged in-year in 2010. The anti-forestalling rules draw on the approach taken when changes were made to business asset disposal relief in 2020. Transitional arrangements are needed for a small group of taxpayers in some specific circumstances. Those taxpayers will have capital gains that are ascribed to the 2024-25 tax year in general and not to any particular point in the year, and because clause 7 makes in-year changes, the Government have a legal responsibility to clarify the capital gains tax liabilities of those taxpayers. To avoid taxing those individuals retrospectively, the legislation puts in place transitional arrangements. The relevant capital gains are treated as arising in the earlier part of the year and are therefore subject to the previous rate schedule. From April 2025, there will be no need for those arrangements to remain.

I now turn to anti-forestalling rules. Some taxpayers will have tried to lock in the old rate by entering into various artificial arrangements and specific anti-forestalling rules are needed to prevent abuse. The anti-forestalling rules target disposals entered into before 30 October 2024 but completed after that date for the main rate change and the investors’ relief lifetime limit reduction. They also target disposals entered into on or after 30 October 2024 for the phased rate changes applying to business asset disposal relief and investors’ relief. The provisions ensure that such people can still access the previous rates and the previous investors’ relief lifetime limit, but only where the disposal has not been artificially structured for the purpose of securing a tax advantage.

I now turn to clause 12, which concerns CGT on carried interest gains. Carried interest is a form of performance-related reward that is received by a small number of individuals who work as fund managers and, unlike other such rewards, carried interest can, where certain conditions are met, be subject to capital gains tax. Hon. Members will have heard the Chancellor announce at the Budget that the Government will reform the way carried interest is taxed, ensuring that that is fairer and in line with the economic characteristics of the reward. From 6 April 2026, a revised regime will tax all carried interest within the income tax framework with a 72.5% multiplier applied to the amount of qualifying carried interest that is brought into charge. The Government are also consulting on potential new conditions of access to the regime. Legislation to implement that revised regime will be included in a future finance Bill.

In advance of the implementation of the revised regime, the Government are acting now to increase the rates of capital gains tax that apply to carried interest. Clause 12 therefore increases the rates of capital gains tax for carried interest arising on or after 6 April 2025 from 18% and 28% to 32%, and from that date, the single CGT rate will apply to all relevant carried interest, subject to the same conditions as currently.

To conclude, the increases to the main rates of CGT to 18% and 24% represent a balanced and responsible approach to revenue raising, which will help the Government to improve the UK’s public finances and services while remaining competitive for investment. The clauses phase in the rate increase for business asset disposal relief over 18 months to mitigate impacts where the previous level of relief was factored into anyone’s plans to exit their business in the short term. That underlines the Government’s commitment to supporting entrepreneurs and recognising the vital role that small businesses play in our economy. In addition, the move to a single higher rate of CGT on carried interest at 32% demonstrates the Government’s commitment to decisive action now, while we rightly take the time to undertake technical consultation on the revised regime.

Just before I call the shadow Minister, I remind Members that, in Committee, I am Madam Chair or Madam Chairman.

Thank you very much, Madam Chair. It is always a pleasure to see you in Committee and to serve under your chairmanship.

On behalf of the Opposition, I rise to speak to new clauses 4 and 5, which stand in the name of my right hon. Friend, the shadow Chancellor. Before I do so, let me set the scene for clauses 7 to 12.

When announcing these changes in her Budget, the Chancellor said:

“We need to drive growth, promote entrepreneurship and support wealth creation”.—[Official Report, 30 October 2024;
Vol. 755, c. 818.]

She said something similar to the BBC in 2023:

“We want Britain to be the best place to start and grow a business” and that was why, she said

“I don’t have any plans to increase capital gains tax.”

This Bill corrects the record. Labour wants to increase capital gains tax, so clearly it does not have any plans for Britain to be the best place in which to start and grow a business. Is it any wonder that business confidence is now at the lowest level we have seen since the pandemic?

Clause 7 increases the main rates of capital gains tax from 10% and 20% to 18% and 24% respectively, with schedule 1 making consequential changes to reflect that these rates are now equal to those on residential property. The Office for Budget Responsibility rates the costings on this policy as “highly uncertain”. It says that

“these costings are among the most uncertain in the policy package, reflecting the range of potential behavioural responses.”

This Government are far too quick to ask others to explain how they would pay for Labour’s policies, when they are clearly failing to explain convincingly how their own policies would pay for themselves.

I wish to take this opportunity to highlight an issue raised with me by the Chartered Institute of Taxation. First, let me place on record my thanks to the organisation for its invaluable support. It has been informed by His Majesty’s Revenue and Customs that it is too late to change the format of the relevant 2024-25 tax return pages to accommodate this in-year change. I would therefore be very grateful if the Minister could provide the following assurances to HMRC: first, that it will be properly equipped to implement this measure; secondly, that the changes will be published as widely as possible; and, thirdly, that an appropriate level of understanding will be shown to taxpayers contending with these complications.

Clauses 8 and 9 increase the rates for gains that qualify for business asset disposal relief and investors’ relief. From 6 April 2025, the 10% rate will increase to 14%. From 6 April 2026, it will rise again to 18%. As the Chartered Institute of Taxation has highlighted, because the increase to the main rates of capital gains tax is effective immediately, this leaves a window where people selling their business can save up to 14% in capital gains tax until April 2025. In other words, the tax changes in this Bill do not cultivate a start-up Britain; they incentivise British business owners to sell up and sell up soon. This could have been avoided—along with the administrative complications that I have already outlined—had measures in clause 7 been implemented from the start of the new financial year.

Will the Minister explain why the timings of these provisions appear to be so untidy, and, for that matter, how exactly they drive growth, promote entrepreneurship and support wealth creation? I simply say that if hon. Members are not satisfied with the Minister’s explanation, I encourage them to vote for new clause 5, which would require a proper assessment of the impact of this perverse incentive.

Clause 10 reduces the lifetime limit for investors’ relief from £10 million to £1 million, while clause 11 and schedule 2 bring in transitional rules and anti-forestalling provisions. On those anti-forestalling provisions, the Chartered Institute of Taxation notes that the anti-avoidance measures risk being “unfairly retrospective”, capturing those who entered into commercial contracts in good faith before the Budget, on the grounds that they do not satisfy the stringent requirement put down by the Treasury to be “wholly commercial”. Will the Minister tell the House why the wording is so tight? Widespread concern over being hit with “unfairly retrospective” taxation would have a chilling effect on parts of the economy. It would exacerbate uncertainty among those who already feel that they have been blindsided by this Government.

With permission, Madam Chair, I shall dwell in a bit more detail on clause 12, which, for me, sums up the Labour Budget. Only Labour could increase spending by £70 billion a year over the next five years—the equivalent of a furlough scheme every year—and still have growth downgraded as a result. Only Labour could come up with a tax rise that loses money for the Exchequer. It is so bizarre that it is worth repeating. Clause 12 is a tax rise that loses money. Clause 12 increases the rate of capital gains tax applying to carried interest gains by as much as 14%, by applying a single rate of 32% in the 2025-26 financial year, after which Labour proposes to take carried interest out of the capital gains tax regime altogether. The Treasury’s own Red Book says that the measure will not raise a single penny in revenue. At the same time, HMRC has disclosed that the implementation of the measure, which impacts on only 3,100 individuals, will cost £4.5 million. To put it another way, the Government could have given every affected individual a tax cut worth £1,500 and the cost to the Exchequer would have been no different. That is total madness, and it is about the only measure in the manifesto that Labour has kept.

The OBR has said that the measure ranks among “the most uncertain” in the entire Budget. It is why new clause 4 would require the Chancellor to review the expected impact of the policy on key behaviours highlighted by the OBR. Will the Minister explain why this one measure, which impacts so few people, costs so much—£4.5 million—when the cost to HMRC of implementing other changes to capital gains tax in the Budget is £600,000.

By the Chancellor’s own admission, these measures make Britain a worse place in which to start and grow a business. In fact, the measures tell entrepreneurs, “Don’t start up, sell up”. They introduce a tax rise, which, unbelievably, loses money. I hope hon. Members will agree that we need to shed more light on the true impact of the Budget.

It is a pleasure to serve under your chairship, Madam Chair. I will talk mostly about new clause 5 on capital gains tax, but, given the remarks by the shadow Minister, I will make a few points on the broader matter and on incentives to start a new business.

My constituency of Earley and Woodley in the Thames Valley is one of the hottest destinations for business investment and for new start-ups in the tech and pharmaceutical sectors. I have met a number of those inspiring entrepreneurs to talk about their start of the business journey. As is widely known, when entrepreneurs start passionately with a project, they are thinking not about the disposal and taxation regime at the end of their journey, but about the infrastructure and the support that they will have around them that brings their idea to fruition. For the tech and pharmaceutical entrepreneurs in Earley and Woodley, that is about a transport infrastructure, a skills base, and schools, colleges and universities in the area that can produce the kinds of graduates who will then staff their company. It is about a regime that is welcoming to entrepreneurship and is welcoming for people to live in and to prosper in. For all those reasons, I very much support our Budget and the Budget that brings more investment to infrastructure across the UK.

First, I welcome the measures on capital gains tax introduced in new clause 5. Let me remind Conservative Members that it was Chancellor Nigel Lawson who, in a much more dramatic measure than that proposed today, equalised the rate of capital gains tax with income tax in 1988. That equalisation was proposed because of tax avoidance. To many people listening to the debate, capital gains tax will not be familiar because, like me, their main means of taxation will be income tax and they will not have come into contact with CGT.

For the purposes of understanding, let me illustrate what I mean by “tax avoidance”. The issue was raised with me by a retired consultant when I was canvassing in the summer in the north of my constituency. When I knocked on his door, he said, “What are you going to do about capital gains tax? I want you to ensure that this doesn’t happen any more.” He then proceeded to illustrate the means by which he had paid less income tax than he otherwise would have done through the capital gains tax system. It was a principled and honourable admission for him to make to his then parliamentary candidate on the doorstep.

Many of us pay income tax, and we are all familiar with the way that it is structured. Among those of us who do not receive income from payroll—that is, who do not work for a company—but have the ability to structure it as self-employed or consultancy income and funnel it into a business of our own creation, that is a channel by which many people avoid paying income tax on activities that are arguably income-like. That happens, as I said, for a minority of people in the UK. The vast majority do not have access to that route because they earn through working for other people through companies, and they are on the payroll and not able to structure their own companies. When those companies holding the—arguably—income revenues are disposed of, that is when capital gains tax comes into the picture. Of course, the rate of capital gains tax is much lower than the rate of income tax, and that is where the gap comes from that was illustrated by my retired constituent.

Madam Deputy Speaker, it is important that the tax system is efficient in raising revenues, which is what our Budget sets out. The tax system must also be principled in ensuring that the tax purposes to which we have allocated certain measures raise the right taxes and are targeted towards the kinds of activities that are meant to be taxed. All of us in the Committee would probably agree that we should pay tax through a progressive system that distinguishes between different forms of revenue-raising activities, but that allocates people fairly and proportionately to those right and relevant activities.

I am reminded of the announcements that came out during the last Government regarding the tax affairs of the former Prime Minister, Rishi Sunak, who paid 23% in average tax on his £2.2 million in earnings. That was of course possible because of the relatively low rate of capital gains tax that he was paying on the vast majority of his earnings, which came through capital and not through earned income.

Again, to the vast majority of people listening to the debate, I am sure that that is a reality far outside their understanding. The vast majority of people in the UK earn income through going out to work and working hard every day. It is for those people—the working people of this country—that this Budget has been made, so that we can lift livelihoods across the country by properly funding our public services and by closing the significant in-year overspend that the previous Government made of £22 billion. Through those measures, and by ensuring the financial stability of our tax system and the economic stability of our country, we will start to raise living standards across the UK. For those reasons, I very much support the measures.

As colleagues will notice, the Speaker’s Chair is vacant, so I remind Members that the Chair should be addressed as Madam Chair or Madam Chairman. I call the Liberal Democrat spokesperson.

I commend the Government for looking at capital gains tax as a potential source of revenue to get public services back on their feet, but we Liberal Democrats believe there was a better way of doing it. Right now, capital gains tax is unfair for everyone. Most people already pay too much capital gains tax when they sell a property or a few shares because the system does not account for inflation over the time they have owned them. At the same time, a tiny number of super-wealthy individuals—the top 0.1%—are able to exploit the capital gains system as effectively one giant loophole to avoid paying income tax like everyone else.

According to the latest HMRC statistics, 12,000 multimillionaires used the loophole to pay less than half the top rate of income tax on their combined £50 billion of income. Instead of raising capital gains tax across the board, we Liberal Democrats would have liked to see the Government properly reform CGT to make it much fairer. To provide a comparison, under the Labour Government’s proposals, the main rate of capital gains tax for basic rate taxpayers is being increased from 10% to 18% and, for higher and additional rate taxpayers, from 20% to 24%. According to the Government’s own statistics, the change will raise about £2.5 billion per year by 2029 to 2030. Under the Liberal Democrat proposal, we would have separated out capital gains tax from income, raised the tax-free allowance, provided a new allowance for inflation and had three different rates of capital gains tax. That would have raised £5.2 billion, more than twice the Government’s proposals.

As colleagues will hear, key to our proposal is the reintroduction of indexation—effectively, an allowance keeping people from paying tax on gains that are purely the result of inflation. That would be fair for ordinary people selling a family home or a few shares, but it would also incentivise long-term investment by ensuring that taxpayers are not penalised due to inflation if they hold their assets for a long period of time.

To summarise, the Liberal Democrat proposals for reforming capital gains tax would be fairer and would raise twice as much. The Institute for Fiscal Studies said our proposals would move CGT in a “sensible direction”. Our new clause 1 is incredibly simple. It would require the Government to produce a report setting out the impact of the changes to capital gains tax under the Bill on investment and on the disposable income of people in different income brackets. The objective behind the new clause is to illustrate to the Government that there is a fairer way to reform capital gains tax and to encourage the Government, in the spirit of constructive opposition, to look at our proposals in future years.

It is a pleasure to serve under your chairship, Madam Chair. I am grateful for the opportunity to take part in Committee of the whole House on a crucial Bill that underpins the new Government’s aim of fixing a tax system that has become less fair and less sustainable over 14 years of Conservative government. We will ensure that the wealthiest pay their fair share, and we will increase funding for public services. I will not detain hon. Members long as we have debated the measures at length already, but I want to make a few brief comments on the portions of the Bill that relate to capital gains tax.

As other Members have pointed out, we need to remind ourselves of our starting point. As the director of the Institute for Fiscal Studies, Paul Johnson, said in his response to the Budget:

“It does bear repeating that the fiscal inheritance”

—that this Government face—

“is truly dire.”

It is in that context that the Bill and the wider measures announced at the Budget should be seen. As the IFS has set out, and Members have mentioned, capital gains tax is paid by less than 1% of the adult population—about 350,000 people. If we break that down further, around 12,000 people—0.2% of the adult population—realise gains of more than £1 million, which account for two thirds of capital gains tax. That is 12,000 people—the main contributors to capital gains tax—paying a little bit more.

Clause 7 raises the headline rates of capital gains tax to 18% for gains within the basic income band for basic rate taxpayers and to 24% for those who pay higher rate income tax. Those levels have risen to match the unchanging residential property rates. The changes are welcome and perhaps not as substantial as was widely speculated in advance. It is important that we look at comparators with neighbouring countries. Those rates, even after the changes, compare well with our European neighbours. In France, as the Minister already said, capital gains tax sits at 30%, rising to 34% for high earners. Our closest neighbour Ireland—often seen as a haven for entrepreneurs who feel that the UK is not a good place to do business—charges 33%, and in Germany it is charged at 25%, plus a 5.5% solidarity surcharge on the tax paid.

Clause 12 includes a long-needed reform in the treatment of carried interest, and I am pleased that the Government are proceeding carefully with this long-overdue measure, moving us towards a tax regime where carried interest is within the income tax framework.

These measures will, I believe, contribute to the crucial revenue that must be raised to fix the foundations of our economy and repair our public services. We need to remind ourselves of the words of George Dibb, the associate director of economic policy at the Institute for Public Policy Research, who said of the changes in the Budget:

“After at least a decade of under-investment, there is now real hope that the government can start to fix the UK’s economic foundations.”

We in the SNP and the Scottish Government believe in progressive taxation. I think that is evident from the changes we have made to income tax since those matters were devolved. We would like a more progressive influence in the changes before us, rather than simply clawing at allowances and increasing the rate. Nothing in clauses 7 to 12 is designed to make matters better in Scotland, but at least the Labour party is consistent on that.

Inheritance tax and capital gains tax are increasingly out of step with modern activity in the UK economy. As the IPPR points out, since the 1980s, household wealth in the UK has risen from three times the national income to more than seven times, yet over the same timeframe wealth taxes have not risen at all as a share of that income. Taxing unearned wealth more fairly and efficiently is a legitimate long-term ambition in a state where the economy is on life support. Taxpayers are left wondering from this Budget whether more tax rises are on the way, after a substantial lack of clarity from the Chancellor, who said a week or so ago that the Government would not come back for more tax rises, or indeed more borrowing, but has since refused to echo those rather injudicious remarks. If she does not have the confidence to stand by her own statements, it is hard to imagine the effect on business and investor confidence across the UK.

The Chancellor should have worked with economic experts, such as those at the IFS, to create a fairer and more growth-friendly capital gains tax, but instead she has been captured by the same old Treasury dogma that has served the UK so badly over recent decades. Capital gains tax raises a growing amount of revenue—about £15 billion last year—partly reflecting the increased role of wealth accumulation in the UK, but it is still less than 2% of all tax take, and although CGT is paid by about 350,000 people each year, two thirds of receipts are from just 12,000 people with an average gain of £4 million.

CGT rates vary significantly across assets, and are almost always significantly lower than income tax rates. That rate differential is unfair and creates undesirable distortions, including to what people invest in and how long they choose to work. The IFS has criticised the Chancellor for choosing simply to increase CGT rates with no effort to carry out what it describes as much-needed reform. It also describes the whole design of CGT as “flawed”, adding:

“There are steps the government could and should take to make the tax fairer and less harmful to economic growth and well-being.”

Moreover, the Centre for the Analysis of Taxation proposes further changes to CGT, including aligning capital gains tax rates with income tax rates, introducing allowances to incentivise investment, taxing the increase in an asset’s value when it is inherited, and implementing an exit tax to prevent individuals from dodging UK taxes on gains made while residing in the UK. It estimates that that package would generate £14 billion, but none of those measures is in the Bill.

The IFS says that if the Chancellor chose to raise CGT rates while leaving the flawed tax base unchanged, she would be choosing to raise some limited revenue at the expense of weakening savings and investment incentives, and of further distorting which assets people buy and how long they hold on to them. The IFS says that that would not be the decision of a Chancellor who is serious about growth. Well, what a portent that turned out to be. She did not reform CGT, and look what happened to growth: forecasts were down immediately after first contact with this inverse Midas-touch Chancellor. It is clear that, in preparing for the Budget, she could have done with a full hour or more with the IFS, but I doubt that she would have listened.

We come to the final Back-Bench contribution, and have saved the best until last. I call Bobby Dean.

Before I address capital gains tax directly, I will make a few short remarks about the state of the national conversation about tax more generally, which I think is highly relevant. I note that tax is always something to be “hit by” in politics—it is violent; we are “hammered” by it—so the debate ends up focusing on who is deserving or undeserving of such punishment. As a result, few organisations are viewed as legitimate targets for taxation. Very rarely do we in politics have the bravery to talk about the virtue of paying tax—what it pays for, how it benefits us all, and why collectively contributing to schools, hospitals and physical infrastructure is sensible investment that we should be proud to make.

That is where the political conversation falls slightly out of step with the mood of the public. Believe it or not, I have had conversations about tax on the doorstep, and I mostly meet people who are proud to make that contribution. Let me be clear: this is not some special plea to talk about tax in a warmer, fuzzier way in order to improve the civility of public discourse. Nor should it be confused for advocacy of a high-tax based economy. I raise that point because our distorted public conversation means that we end up with a dysfunctional tax system that is neither efficient nor equitable. Where we are with capital gains tax is a good example of that.

Decades of wrangling over whether capital gains tax stifles entrepreneurship or is merely a ruse for the rich often results in a pretty reductive focus on rates. It seems that that happened again in the Budget, and I fear that we have missed an opportunity to make that tax better. As others have explained in putting capital gains tax into context, it is paid by around 350,000 people and raises around 2% of total tax revenue, and 12,000 people account for two thirds of that revenue. That tax does not necessarily affect a broad section of society, but it does play an important role in investment in the economy and in the overall sense of fairness in our system.

Let me start with the economy. It makes no sense to me for the Government to make changes to capital gains tax without sorting out the tax base. If we do not index capital gains for inflation, we are not really taxing the thing that we say we are taxing. We should be focused on the real gains—otherwise, we risk taxing those who simply hold on to an asset for a long time, and ultimately we end up discouraging long-term investment.

Secondly, we ought to be targeting capital gains tax at those making the larger gains—if large gains are to be had, those investments will be made anyway. Smaller gains, however—the stuff at the margins—are where investment decisions could be at risk. Raising the CGT allowance a bit would go a long way towards addressing that, as would designing better-targeted reliefs that more precisely encourage investment.

Finally, we come to capital gains tax rates, whose alignment with income tax rates is often called for. The Government have of course moved a bit on that, but a focus on rates alone means that an inherent unfairness remains. There would still be the sense that there is one rule for small businesses and another for the giants. When he appeared before the Treasury Committee, Paul Johnson of the IFS remarked on another unfairness: someone can simply leave the country for a few years and dispose of an assets overseas—somewhere like Monaco—and they are then no longer responsible for capital gains tax. That is another inherent unfairness.

Ultimately, with the proposed changes only, the system will continue to disproportionately benefit the very wealthiest. It is for that reason that I cannot support the measure. If it passes, I hope the Government will consider carefully the impact of the change in isolation, and whether further reforms are necessary in future. Our tax system needs to ensure that everybody pays their fair share, and I do not think the Government have quite got this one right yet.

We come to the Front-Bench wind-ups. Does the shadow Minister wish to speak?

indicated dissent.

I call the Minister.

I thank hon. Members for their contributions to today’s debate. I will take a few moments to respond to some of the points, and will then give the Government’s views on the proposed amendments. If there are questions that I do not answer, I will write to hon. Members.

I thank my hon. Friend Jim Dickson for his important speech and agree with his points about much-needed reform to our tax system. I also thank my hon. Friend Yuan Yang for her powerful speech and wholeheartedly agree with her constituent, who seems very principled and knowledgeable.

To respond to the points made by the Conservative spokesperson, Gareth Davies, about the revenue impacts of the carried interest measure, the OBR-certified costings demonstrate that this measure raises revenue over the scorecard period. The Budget does deliver on the Government’s manifesto commitments on tax: estimated revenues for these policies have been adjusted for final policy decisions and to account for underlying changes in the OBR’s forecast, but overall, the hon. Gentleman may be interested to know that the tax measures raise over £1 billion more than was in the manifesto.

To answer the hon. Gentleman’s question about why the changes are being made in-year, the in-year rate changes were made to protect Exchequer revenues from the impacts of forestalling. It is common practice for tax changes to take effect from the date of the Budget. As for anti-forestalling, we would not expect the anti-forestalling provisions to apply to an ordinary commercial sale of an asset where the contract was entered into prior to 30 October. Those provisions target those who enter into artificial arrangements to lock in the pre-Budget tax treatments.

The Lib Dem spokesperson, Daisy Cooper, talked about inflation indexation of CGT. Indexation previously existed when CGT rates were charged at income tax levels with a top rate of 40%. A rate schedule of 18% and 24% is significantly below those levels, so for the important reason of simplicity, indexation is not a part of the system.

New clause 1 would require the Government to present to Parliament a review of the capital gains tax package’s impacts on long-term investment, disposable income across the distribution, and tax revenue. In deciding on these changes to capital gains tax, the Government have already considered all three factors. On long-term investment, the OBR assessed the CGT package to have no measure-specific macroeconomic impact. On impacts across incomes, distributional analysis for all Budget measures combined is set out in the “Impact on households” publication. The Government do not normally publish the impacts of individual measures. Finally, the Government’s projection of the revenue raised by these CGT changes has been certified by the OBR and published in the Budget document. Every year, the Government publish the amount of CGT paid in the most recent tax year with available data, where table 3 breaks down gains by income. For those reasons, the proposed report is unnecessary, and I implore Members to reject the new clause.

New clause 4 would require the Government to publish a review within three months of the passing of this legislation covering various issues in connection with our reforms to the tax treatment of carried interest. As set out earlier, the CGT rates applicable to carried interest will increase to 32% from April 2025. This is a first step in advance of moving to a revised regime fully within the income tax framework from April 2026. The Government believe that their reforms will deliver increased fairness and place the tax rules on a more sustainable footing, while preserving our country’s position as a global fund management hub. We will also be undertaking extensive technical consultation ahead of legislating for the revised regime in a future finance Bill, which the House will of course have the opportunity to scrutinise. We therefore do not consider that new clause 4 is a necessary addition to the Bill that is before us today.

If the shadow Minister looks carefully at the documents we have published, he will find all his answers written out very clearly there.

New clause 5 would require the Government to publish an impact assessment of the changes to business asset disposal relief, and to compare the impact of those changes with the number of claims that would have been expected if the rate had not been changed. Every year, the Government publish capital gains tax statistics, which include the number of business asset disposal relief claims for the most recent tax year with available data. The number of claims in 2024-25 compared with upcoming tax years will therefore become public information in time. Meanwhile, the fiscal impact of the changes are is out in the tax information and impacts note for this measure, which has been published online.

It would not be practical for the Government to publish counterfactual comparisons for all tax changes, and doing so for business asset disposal relief would create an unsustainable precedent. The Government recognise that monitoring and evaluation are critical to maintaining the efficacy of any tax measures they introduce, and will continue them as appropriate. For these reasons, new clause 5 is not a necessary addition to the Bill, and I ask Members to reject it.

I hope I have been able to reassure Members who have tabled new clauses that, for the reasons I have set out, those additions and changes are not necessary. I therefore urge the Committee to reject new clauses 1, 4 and 5, and I commend clauses 7 to 12 and schedules 1 and 2 to the Committee.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Schedule 1 agreed to.

Clauses 8 to 11 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 12 ordered to stand part of the Bill.