Raising capital gains tax now would be 'the greatest own goal scored in history', City veterans warn ministers
Ministers must ditch a planned rise in capital gains tax that would 'devastate' Britain's economy, City veterans have warned.
Raising it to the same level as income tax would be 'the greatest own goal scored in history', they have told Prime Minister Boris Johnson.
As Britain tries to bounce back from the coronavirus recession, Chancellor Rishi Sunak is said to be considering raising capital gains tax in his March Budget.
Chancellor Rishi Sunak is said to be considering raising capital gains tax in his March Budget
The Institute for Public Policy Research think-tank estimates that this could raise an extra £90billion over five years, which would help with the UK's spiralling debts.
But financial services entrepreneurs fear such a rise would stifle the enterprise and innovation needed to fuel Britain's recovery.
City grandee Michael Spencer, founder of broker ICAP and a former Tory Party treasurer, said: 'The Government will be doing great damage to the British economy if they increase capital gains tax.
'At a time when the UK is recovering from Brexit and the pandemic we need investment into the country.'
CGT is charged on the profits made from selling investments not held in a tax-free account such as an ISA. Entrepreneurs often pay it when they sell a stake in their business to expand it, or pass it on to new owners.
It is charged on profits of more than £12,300 at 10 per cent or 20 per cent depending on the seller's overall income.
City grandee Michael Spencer, founder of broker ICAP and a former Tory Party treasurer, said: 'The Government will be doing great damage to the British economy if they increase capital gains tax'
But the Office for Tax Simplification – an independent branch of the Treasury – wants to cut the tax-free sum and align CGT rates with income tax bands of 20 per cent, 40 per cent and 45 per cent.
Entrepreneurs have branded the plan 'short-sighted', arguing that the UK could lose much more over the long term as business owners decide to take their ideas overseas.
Andy Bell, head of investment platform AJ Bell, said the move would boost the Treasury's coffers 'by only a modest amount at a significant political cost'.
'We are already seeing entrepreneurs cashing in their chips and selling their business to take advantage of the current CGT rates. Harmonising CGT with income tax would be politically toxic,' he added.
Alasdair Haynes, head of Aquis, a 'challenger' trading venue aiming to rival the Stock Exchange, said: 'I think the short-sightedness is going to be devastating. I've been a Conservative all my life, but I wrote to the party and said, 'I'm never giving you any more money'. I didn't vote Conservative to be the highest-taxed country in Europe.
'As an entrepreneur, you establish your business and commit everything you possibly have for a period of ten years or more – with the intention that one day, the sacrifices you've made will be paid back to you when you sell your company or list it.
'But now every entrepreneur establishing a business will suddenly have a partner called the Government which is going to take about half of everything you've got.'
Mr Haynes warned that it is an especially bad idea to increase CGT as the UK finds its feet after leaving the EU.He said: 'There is a tremendous opportunity to bring the greatness back into Britain by setting ourselves as a low tax, massively supportive entrepreneurial country with better regulation to enhance and create greater tax growth.
'But doing the opposite will be the greatest own goal scored in history.'
Mr Sunak faces a major headache as he tries to think of ways to get the public finances back to a more sustainable footing.
Public sector debt is now £2trillion-plus, more than the whole economy, and from April to November the Government borrowed £284.7billion to cover the gap between spending and revenue.
This is three times the previous high since comparable records began in 1984.