Capital gains row puts Cameron on the defensive

Davis: Rise will hit self-reliant middle and working classes
Davis: Rise will hit self-reliant middle and working classes

By Ian Dunt

David Cameron will make a speech outlining his pro-business credentials tomorrow after the row over a capital gains tax hike began spreading among his backbenchers.

David Davis joined the growing rebellion with a piece in the Daily Mail this morning, with a warning that a rise would hit the "self-reliant middle and working classes".

His intervention came after John Redwood, a popular figure on the right wing of the party, wrote to the Treasury yesterday demanding a rethink of the policy.


"It would send a strange signal if a Lib-Con government decided to more than double the CGT rate set by a Labour government," he wrote.

"It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good."

The coalition deal suggests capital gains tax rates should be roughly equivalent to income tax rates, suggesting something akin to 40%. The extra money will go toward funding Nick Clegg's pledge to raise the income tax threshold to £10,000.

"Essentially, for the really rich capital gains tax is a voluntary tax. Those with large estates can afford the expensive accountants who minimise their taxes," Mr Davis wrote in the Mail.

The elderly will be particularly hard hit, he warned.

"Over the last decade or so their attempts to provide for their old age, and to pass something on to their children, have been savagely handicapped by Gordon Brown," he said.

"It is no surprise, therefore, that this class of people - the hard-working, responsible, self-reliant middle and working classes who want to get on - have looked to invest their savings outside the normal pension funds, and under their own control."

Mr Cameron responded to his concerns while appearing on the Today programme this morning.

"David will use his own words but I actually think if you read that column you can see that he is saying there are dangers that if people treat capital gains as income you are going to have a problem with tax evasion," he said.

"The point I make here... do I understand the importance of encouraging entrepreneurship in our country? Of course I do. Do I think that high marginal tax rates are a mistake? Of course I do. We understand these arguments. We have to raise some modest amounts of revenue in order to raise the income tax threshold which we think will help particularly low paid people."

Business secretary Vince Cable said the coalition was not split on the issue when talking to the BBC.

"It's very important that we have wealth taxed in the same way as income," he said.

"At present it is quite wrong and it is an open invitation to tax avoidance to have people taxed at 40% or potentially 50% on their income, but only taxed at 18% on capital gains; it leads to large scale tax avoidance so for reasons of fairness and practicality, we have agreed that the capital gains tax system needs to be fundamentally reformed."

The row threatens to become the first issue to reveal divisions between the Lib-Con coalition, with the Tory leadership straining to argue for Dr Cable's left-leaning policies.

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