CGT revenue 'will fall by £2.5bn'

Tax revenues will fall by £2.48bn if the Government raises the rate at which capital gains tax (CGT) is charged, it was claimed yesterday.

In next week's emergency Budget, Chancellor George Osborne is expected to unveil plans to raise the rate at which CGT is charged on non-business assets from its current rate of 18 per cent to 40 per cent or even 50 per cent.

But the Adam Smith Institute, a free market think-tank, warned that rather than increasing the Treasury's revenue, the proposal was likely to reduce the amount of money received from CGT and other taxes by nearly £2.5bn – equivalent to having to cut an extra 30,000 public-sector jobs.

The institute said evidence from other countries suggested that every 1 per cent rise in the rate of CGT led to a 2 per cent fall in revenues. Its analysts estimated that, overall, bringing CGT in line with income tax would lead to a £880m fall in revenue, while income from other taxes would drop by £1.6bn because of the impact on economic activity.