Capital Gains and tax avoidance

Tweet I'n quite enjoying the spectacle of Tory backbenchers getting het up about proposed changes to Capital Gains Tax. It's one of the policies insisted on by the Lib Dems – and goes directly contrary to what the Tories themselves would otherwise have done, so I can understand the backbench frustration.

Part of the problem with the debate on the substance though is that the two different viewpoints are based on very different perspectives on the issue.

Plaid, like the Lib Dems, called for an increase in the rate for Captial Gains Tax. We actually argued that it should be set at the same rate as income tax, and subject to the same single tax free allowance. The principle behind that was, very simply, that 'income is income', and should be taxed as such.

We were mindful of the way in which the differential rates of tax were leading some people (hedgies, for instance) to take their income in the form of capital gains, which means that people with a very high income end up paying tax at a lower rate than the most low-paid in society. It's a practice which costs the Treasury around £1billion a year in lost revenue.

Those objecting to the change seem to be doing so on the basis that it hits long-term savers, including those who have invested to fund their retirement. I'm not entirely unsympathetic to that position, but I somehow doubt that there is an easy way of differentiating between the two different things without creating more loopholes which those who simply wish to avoid paying tax would seek to exploit.