Page last updated at 12:40 GMT, Wednesday, 26 May 2010 13:40 UK

John Redwood proposes capital gains tax alternative

John Redwood
John Redwood has expressed concern about coalition tax policies

Senior Conservative MP John Redwood has urged the coalition government to rethink planned rises in non-business capital gains tax.

Mr Redwood has written to Treasury Minister David Gauke suggesting an alternative way of raising the cash.

The ex-cabinet minister has led Tory criticism of the coalition's tax plans.

PM David Cameron and deputy Nick Clegg agreed to increase capital gains tax to help pay for the Lib Dem pledge of taking the poorest out income tax.

Short-term gains on non-business assets, such as shares and second homes, could face tax rates up from 18% to 40% or 50% in next month's budget.


The planned move is aimed at curbing short-term speculation but some Conservative MPs and peers fear it will harm business and act as a brake on entrepreneurship.

Under Mr Redwood's plan, the tax rise would be replaced by a form of taper relief, where the longer an asset has been held, the lower the tax is paid on it.

This is thought to be a potential option being considered by the Treasury.

In his letter to Mr Gauke, Mr Redwood says: "The government has said it wishes to assist a substantial private sector led revival, and wants to see the enterprise sector create more jobs and homes for rent.


"The government needs a policy which allows reasonable freedom for people to invest, encourages those who are responsible and who make provision for their families and their futures, and is fair."

He suggests tax gains of under a year should be taxed the same as income, but at a top rate of 40%, rather than the current 50%, as it is "temporary".

Longer term gains should be taxed at lower rates of 30% for two year gains, 20% for three years and 10% for four years, suggests Mr Redwood. He said this would act as "stimulus to long term investment" and boost revenues.

'Not rebels'

He adds: "I would myself go further and offer no capital gains after five years, to send a strong signal to the world's investors that the UK is back in business as a favourable location.

"I have been swamped with support for these suggestions, both from around the country and from Conservative MPs.

"It would send a strange signal if a Lib/Con government decided to more than double the CGT rate set by a Labour government. It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good."

In an interview with BBC Radio 4's The World at One, Mr Redwood denied he was leading a rebellion on the coalition government's tax plans.

"We're not rebels, we're offering sensible advice to a government thinking through what it ought to do about this very interesting problem.

"They are in listening mode, the government hasn't come forward yet with a proposal."

He also denied that backbench concern over tax was related to disquiet about the government plans to change Commons rules so that it would take 55% of MPs to trigger a dissolution.

Will Hutton, of the Work Foundation, who is advising the new government on fair pay, said Mr Redwood's proposal was "not a bad idea" but the problem with it was that "it does not differentiate between enterprise and financial wheeler-dealing".

He said wealth creators should pay little or no capital gains tax but, at the same time, the system should discourage "short-term spivvery".

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