Taxation: Capital Gains Tax — Question

– in the House of Lords at 2:44 pm on 7 July 2015.

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Photo of Lord Lee of Trafford Lord Lee of Trafford Liberal Democrat 2:44, 7 July 2015

To ask Her Majesty’s Government what is their estimate of how many taxpayers will pay capital gains tax in this financial year, and how much this will contribute to the public purse.

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

My Lords, the latest published estimate of the number of taxpayers liable to capital gains tax is for 2012-13, when there were 169,000 such taxpayers. CGT receipts amounted to £5.6 billion in 2014-15, the latest year for which figures are available. Forecasts of receipts published by the Office for Budget Responsibility amount to £6.5 billion for 2015-16.

Photo of Lord Lee of Trafford Lord Lee of Trafford Liberal Democrat

My Lords, in reply to the Oral Question yesterday from the noble Baroness, Lady Wheatcroft, the Minister said:

“The Government are considering what steps are appropriate to make further progress in shifting the culture of equity markets towards long-termism”.—[Hansard, 6/7/15; col. 5.]

May I suggest that one obvious step for a blue budget—or, indeed, a budget of any colour—would be to bring in a differential between short-term and long-term gains, taxing short-term gains at an individual’s top rate but with tapering rates for longer-term gains? Would not this approach, as supported by most genuine investors and the Quoted Companies Alliance, be more equitable, likely to deliver greater revenues for the Exchequer and, above all, in the national interest as well?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

My Lords, I hear what the noble Lord is saying and I tread with some trepidation here as we are on the eve of the Budget. However, what I will say is that while previous CGT has had a taper or been indexed to favour long-term holdings, such an approach would lead to the reintroduction of significant administrative burdens for many CGT payers. It would bring significant complexity into the tax system and the wider economic impacts would have to be assessed.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, given that when the coalition Government increased the rate of capital gains tax by 10%, the revenues went down, and when they cut the top rate of income tax by 5%, the revenues went up, what conclusions does my noble friend draw about opposition tax policy?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

I draw a number of conclusions, my Lords. Overall, the Government believe that the current top rate of CGT at 28% is a good balance between raising revenue, reducing the incentives to substitute income for capital gains and retaining incentives to save and invest.

Photo of Lord Foulkes of Cumnock Lord Foulkes of Cumnock Labour

My Lords, further to the question of the noble Lord, Lord Forsyth, what are the Government doing to make sure that people liable for capital gains tax are paying it?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

My Lords, as your Lordships will know, during the last Parliament this Government took a number of steps to tackle avoidance and evasion. Indeed, they were relentless in their crackdown on tax avoidance. HMRC will have secured £100 billion in compliance yield. This includes more than £31 billion from big business and £1.2 billion extra from the UK’s richest people.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury)

May I press the Minister? If the Government are seeking to provide support to working people, will it not be appropriate to begin to align capital gains tax rates with income tax rates, especially for these large, short-term capital gains?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

The noble Baroness makes an interesting point. As noble Lords know, this Government are intent on helping working people. Last year, we cut income tax for more than 26 million people, took more than 3 million out of income tax altogether and created more than 1,000 jobs every single day. This Government intend to do better still.

Photo of Lord Flight Lord Flight Conservative

My Lords, I recollect that, for an asset which has been held for a long time, the base value can be uprated to that which applied in, I think, 1983. However, inflation has made a nonsense of that. Will the Government look at changing the date at which long-held assets are rebased for cost purposes?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

I hear what my noble friend is saying. However, I tread with extreme trepidation and say that decisions on that matter are for the Chancellor to announce at the Budget.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Transport), Shadow Spokesperson (Treasury)

My Lords, the House will have noted the Minister’s sensitivity about making comments on tomorrow’s Budget. That is not the kind of thing which inhibits the Chancellor, and therefore I am not inhibited either. I think he has made clear that he is not going to increase income tax or national insurance contributions. As the Minister said, it is unlikely that capital gains tax will be greatly affected, although he is not quite sure about that. Is it not quite clear that the Government’s strategy is in fact not to be fair about taxation but to be brutally unfair about welfare expenditure?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

No, I reject that utterly, I am sorry to say, my Lords. As the noble Lord will know if he has read the Conservative Party manifesto, the Government are committed to cutting income tax for 30 million people, taking everyone who earns less than £12,500 out of income tax altogether. As I alluded to, we intend to surpass what we did in the previous Government and help businesses create more than 2 million new jobs. That is the best way to tackle poverty and disadvantage in this country.

Photo of Lord Brabazon of Tara Lord Brabazon of Tara Conservative

Does my noble friend recall that, when capital gains tax was first introduced many years ago, there was a rate for exactly one year that you had to pay on income tax rates and after that it became 30%, which is the sort of suggestion that the noble Lord, Lord Lee, was making. That was a disaster, actually, and resulted in significant distortions in the market. It would be a disaster to move back to that idea.

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

My Lords, the Government believe that the current structure of CGT balances the need for simplicity alongside fairness by having three effective rates, which provide a lower rate for basic-rate taxpayers and support for entrepreneurs, alongside the main rate. At that, I am going to stop.

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative

My Lords, I declare an interest as somebody who paid capital gains tax last year, having already made it. I am prepared to volunteer through my noble friend to teach the noble Lord, Lord Foulkes, first, how to make a capital gain and, secondly, how he declares it for tax.

Photo of Lord Berkeley Lord Berkeley Labour

My Lords, given my noble friend’s question on tax avoidance and the Minister’s answer, how can he link this with the fact that the Inland Revenue has just lost 20% of its staff?

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

My Lords, I know that my right honourable friend the Chancellor will continue to ensure that HMRC has the assets and resources at its disposal to do what is required.