You don’t have to be entirely cynical to wonder whether David Davis’s intervention over capital gains tax is a calculated political move designed to plant his flag firmly in the “Tory troublemaker” camp.
The coalition is planning to lift CGT from 18 per cent (over a threshold of £10,100 a year) to a level closer to that of income tax – which is paid at 40 per cent by high-earning middle classes.
The phrasing was originally that CGT would be “similar or close to” income tax levels. Now it’s “closer to” income tax levels, a subtle shift which could allow for a less radical move.
Despite this, however, Tory backbenchers are up in arms; on behalf of their constituents and not only themselves. John Redwood is also at the forefront of the rebellion, having written to the Treasury yesterday to ratchet up the lobbying for a taper to restrict the most punitive tax rate to assets that are not held long-term.
Many second-home owners and shareholders are planning to offload assets before the Budget in late June to escape the changes. It’s still not clear why the coalition went public on its plans in early May – creating six weeks of confusion for the general public.
Davis, writing in today’s Daily Mail, warned that the super-rich would always find ways to escape paying CGT. Those who would be caught out would be the elderly and those who had worked hard and saved, he argued.
Yet David Cameron is in a bind: to back down on the issue risks the anger of his new Lib Dem coalition bedmates. Vince Cable was on the airwaves this morning insisting there was “no split” on this “key” issue.
Cameron’s riposte this morning was that there was no logic to having such different tax rates for income and assets.
“David Davis will use his own words, but I think that if you read all the (arguments) he is using, there are dangers if people treat capital gains as income, as you are going to have problems with tax evasion,” Cameron told the Today programme. The prime minister was at great pains to emphasise that entrepreneurs would be excluded from the change – although critics say that buy-to-let, for example, is a business in its own right.
Davis, who lost out to Cameron for the Tory leadership in 2005, has certainly not wasted any time in criticising the new coalition. (He has also attacked them for its “55 per cent” proposals for bringing down a government.) Will the government regret not giving him a ministerial post? Giving him the chairmanship of a select committee would have been one way to keep DD out of trouble; alas that power is now in the hands of MPs themselves, and not the government.
And Davis himself has rejected one rumour that he might chair the Treasury select committee, telling me: “Not in a million years.”
UPDATE: Michael White at the Guardian has some insights into the mindset of rightwing Tory rebels.
Jim Pickard
Kiran Stacey