Finance Bill

The amendments are probing amendments. We are keen to understand the thinking that led to the figure of 28% as the rate of capital gains tax. We will not vote against the Government's proposal or for the lower figure proposed in the three amendments. I noted that some of my hon. Friends, including some who are in the Chamber, tabled an amendment calling for a higher rate at 40%. I understand why, in accordance with convention, it was not selected for debate. However, I am puzzled that no Liberal Democrat Members put their names to that amendment because it appears to reflect the proposal in their manifesto. The Liberal Democrat manifesto, which is always an interesting read, sets out, under the slogan, "Change that Works for You", a series of tax-raising measures, including,""taxing capital gains at the same rate as income, so that all the money you make is taxed in the same way."" The document, "Liberal Democrat Tax Plans", went into more detail. It states:""We propose to tax capital as income in order to remove this anomaly."" That presumably means applying a 50% rate to those on the highest income, as well as a 40% rate to those on the higher rate tax. The Liberal Democrat document claims that that would raise £3.2 billion a year. It also argues for reducing the annual tax exempt allowance from the current figure of just over £10,000 to £2,000, thereby raising a further £0.9 billion a year. That is more than £4 billion a year—a significant contribution to avoiding the unfair VAT rise, which is at the heart of the Budget and against which the Liberal Democrats campaigned. If more than £4 billion had been raised in that way, one percentage point of the 2.5% VAT rise could have been avoided. Some of the thinking in the Liberal Democrat documents survived in the coalition agreement, which states:""We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income."" The Liberal Democrats were therefore successful in at least getting the idea into the coalition agreement, but they signally failed to get it into the Bill. The Chancellor in his Budget speech flatly rejected the suggestion of reducing the annual exempt allowance. He said he would leave it at £10,000 and, far from reducing it to £2,000, would continue to uprate it in line with inflation in future. I am encouraged to see the hon. Member for St Ives in his place, together with some of his hon. Friends. He has tabled an amendment, about which he will speak shortly, and he may seek to pursue the ideas in the Liberal Democrat manifesto. It would be interesting to know whether Liberal Democrats really supported those proposals when they campaigned on them. Have they been persuaded by their coalition partners that they were naive or unrealistic, or that the proposals were damaging? Have most Liberal Democrats just given up, smothered in the embrace of their new partners and no longer capable of defending the policies on which they were elected? I am very much looking forward to what the hon. Member for St Ives has to say on that. He has already described himself as a free-ranging Back Bencher, although he was not quite free enough to range into the Aye Lobby with the Opposition earlier this evening. I am keen to hear from him and perhaps from other Liberal Democrats, who appeared to have such distinctive views on capital gains tax during the election campaign but who have since seemingly abandoned them, choosing instead to support what is traditionally the Conservatives' favourite tax-raising device, namely an increase in VAT. We also need an explanation from the Minister, because, as I said, the coalition agreement states:""We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income"." It is a bit hard to see how 28% can be described as""similar or close to"" 40%, let alone to 50%, and I hope the Minister can offer some explanation for the adoption of 28%, which seems to be at variance with the agreement. Perhaps he could shed some light on how vigorously—behind the scenes within the Government—Liberal Democrat members of the coalition fought for the position that they succeeded in negotiating into the agreement. Alternatively, is the truth that having got that into the agreement, they simply gave up, vacated the field and meekly accepted 28% as the best that the Conservatives were going to offer them? It would be of great interest to many of us if the Minister could shed light on those discussions. Why was the figure of 28% chosen? It somewhat narrows the differential between tax on income and tax on capital gains, but it does not narrow it any further than the position before the introduction of the 50p rate, and nowhere near abolishes it. Indeed, increasing the rate by just 10 percentage points means that somebody on the 50p rate of income tax has exactly the same incentive to convert their income into capital gains as when they paid tax at 40p in the pound. For those people—the highest earners—there has been no reduction in the incentive, but as I understand it, reducing the incentive was the whole reason for the change. There was one hint in the Chancellor's Budget speech on the reason for choosing 28%. He said:""I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues."—[Official Report, 22 June 2010; Vol. 512, c. 178.]" I would be grateful if the Minister could confirm whether the Government's view is that 28% is close to the revenue-maximising rate. Is 28% the rate at which proceeds from capital gains tax are maximised? Is he willing to place in the Library the "dynamic analysis" to which the Chancellor referred that shows how proceeds would decline if the rate were set at higher than 28%, more in keeping with the proposal in the Liberal Democrats' manifesto? The Red Book tells us that that change will generate £725 million next year. That is certainly a handy and significant sum, but it is only about one sixth of the amount that the Liberal Democrats wanted to raise from increasing capital gains tax. Can the Minister tell us how much of that £725 million will be raised in capital gains tax, and how much of it will raised in income tax that would otherwise have been avoided by switching to capital gains?