TAX NEWS - JUNE 2010

UK Tax: Top priority is tackling the deficit

In her 58th speech at the State Opening of Parliament, the Queen told us that the coalition Government's legislative programme would be based on the principles of freedom, fairness and responsibility.

There were 22 Bills proposed, of which the most important were for significant acceleration in the reduction of the annual state deficit, to be achieved mainly by less spending rather than more taxation.

There are a lot of new faces on the Green benches — 227 to be precise, which is 35 per of total membership; there are more women and increases in the ethnic diversity of MPs. All in all a parliament more representative of the population than ever before. Slowly, I am getting to know some of them.

So if you are new MP, or even an 'old' one, what is the key issue facing us in this new session? First and foremost is the economic recovery and budget deficit, the central economic challenge for the Government.

The deficit is forecast to be £163 billion — 11.1 per cent of GDP this year — a very high level by historical standards. Getting to grips with it is an absolute priority, and a coalition Government does at least mean the passage will be smoother than it would have been in our traditional adversarial system.

At Westminster the subject getting everyone hot under the collar is the suggested change to capital gains tax. As Conservatives we absolutely believe in a lower tax economy — and rest assured, that is what the Government wants, over time, to deliver lower rates of tax, particularly for families, pensions and small businesses.

The problem is the appalling budget deficit. The Government is looking carefully at all the tax changes necessary to repair the hole in the public finances we have inherited. We are doing so in the context of trying to create a fair, credible plan where the main burden of deficit reduction is borne by reduced spending, not increased taxes.

The Government has made clear that it plans, over time, to increase the income tax personal allowance to £10,000, funded, in part, by increases in CGT rates for non-business assets. There are options to consider before changes to CGT are made and it is important to work to get the detail right.

I think, for example, that the disparity between rates of CGT and marginal income tax presents a problem and that these rates can be brought closer. The Government will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.

Ministers are working with officials to set out a precise definition of non-business capital gains which heeds points raised by our constituents.

I would like to add something for landlords: it is vital that we support the private rented sector in increasing general housing supply; particularly true where it bolsters social housing, under severe pressure from a waiting list that doubled under the last Government.

I know that Treasury ministers are aware of the potential impact on landlords of changes to CGT. These concerns will be taken into account before any final decision is made.

As regards my own colleagues in the Commons who are concerned about the impact of changes to CGT on self-reliant people who have made investments to prepare for the future, I am doing my bit to persuade ministerial colleagues to consider ideas like making any new CGT rates subject to generous taper relief.

On the whole the Queen's Speech and the Bills put forward for deficit reduction were well received.

Then, as is often the way in politics, the first scandal broke. David Laws' rent claims forced him to resign. Laws has himself admitted that he was in breach of the rules, and as a guardian of public spending probity his position became untenable.

But he is a great loss to the coalition, in the main because of his financial acumen. He is renowned for his capacity to consume information and process it logically, a talent few have. He was excellent at examining departmental budgets and finding efficiencies.

But his resignation as Treasury Chief Secretary and his replacement by Danny Alexander does not undermine plans for a deficit reduction programme in next month's emergency Budget.

From what we know of Alexander, he is as much a hawk on the deficit as his predecessor. Certainly the emergency Budget on June 22 should be evidence of this.