Clause 8

Part of Finance (No. 3) Bill – in a Public Bill Committee at 6:15 pm on 10th May 2011.

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Photo of David Hanson David Hanson Shadow Minister (Treasury) 6:15 pm, 10th May 2011

As the Committee will know, each taxpayer has an annual exempt amount before they have to pay capital gains tax. No tax is paid on total gains made over a year up to that amount and gains above it generally pay a rate of 28%. The clause confirms the annual exempt allowance for 2011-12 as £10,600.

The key point on which I want to question the Exchequer Secretary is the clause’s introduction of a mechanism for the annual exempt amount to be increased when there is an increase in the retail prices index, which is known colloquially to us all as RPI. The clause introduces that mechanism, but the Government announced in the 2011 Budget that indexation for direct taxes, including capital gains tax, will be moving to the consumer price index in 2012-13. Why does the clause use the RPI when the Government have indicated that future taxation will use the CPI? Will the provision have to be amended this time next year in a future finance Bill? If so, why is the RPI being attached to the appropriate level of assessment in this Bill?

There is an honest disagreement between the Government and the Opposition about the level by which we should judge the rate of inflation and there are different methods to do that. The Bill raises some questions. Why is it using the RPI rather than the CPI to date? Is that an indication that although there was a switch to CPI in the Budget, it was too late for it to be drafted in the Bill? I am interested, because that indicates a lack of transparency. The Government have said on the one hand that taxation will be indexed by CPI from next year, yet on the other, they include a measure in the Bill that uses RPI. They need to be open, honest and transparent about that. They appear to be hiding the RPI measure today, even though they will need to amend it—unless the Exchequer Secretary tells me otherwise—to CPI at some point in future.

The impression is of a stealth tax rise that was very much a last-minute decision. I would welcome some confirmation from the Exchequer Secretary about the measure under the exempt amount. Will it relate to RPI in perpetuity—for the duration of this Parliament, which would mean that no changes would be made next year in relation to indexing, or will the amount relate to CPI, as proposed for other measures? If so, the next Finance Bill will require a measure to amend the provisions of indexation under clause 8. Can the Government confirm that the annual exempt amount will, in future, increase by CPI rather than RPI? That would mean that more gains would be brought into the capital gains tax regime.  Why are the Government including RPI in the Bill as the mechanism for increasing the annual exempt amount when they know that they will have to amend it next year to CPI? Could that not have been done at once?

Those are my only questions on the clause. The Exchequer Secretary may be able to satisfy me about the machinations that have resulted in the clause as it stands, but there is an anomaly in the provision that he must explain and discuss in his approach to the debate.