David Cameron defends CGT plan amid backbench rebellion

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David Cameron defended proposals to raise capital gains tax today amid mounting backbench Tory disquiet - but insisted MPs' concerns would be listened to.

The Prime Minister said a higher rate was needed to raise the "modest" sums needed to pay for income tax cuts for low and middle earners as part of the coalition deal with the Liberal Democrats.

He refused to be drawn on whether the changes - to be unveiled in the emergency Budget on June 22 - would include safeguards to protect people who had invested for their retirement.

There are fears that Chancellor George Osborne could raise the current 18% levy on certain windfalls such as share and second home sales to the same level as income tax - up to 40% and 50%.

In the coalition deal, the Conservatives and Liberal Democrats said they would "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".

Mr Cameron was pressed on the issue as former shadow home secretary David Davis became the latest senior party figure to criticise the move, warning that it risked "punishing the virtuous" and "destroying aspiration".

"It will penalise hard work and saving. Far from taxing the rich, it will simply tax the elderly at their point of maximum vulnerability - when they enter retirement." Mr Davis wrote in the Daily Mail.

"Unless it is very carefully designed, the plan to increase CGT will not only fail to raise the money needed, it will cost money," the Haltemprice and Howden MP added - citing evidence from the US.

His criticisms followed an open letter to the Treasury published yesterday by Tory former minister John Redwood, who proposed a "tapering" system for longer-term windfalls, with a 30% rate for two years, and 20% for three years.

Four years or more should attract a 10% levy, and five or more 0%, according to the MP.

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

Asked about the idea of a taper, Mr Cameron said: "We will listen to all the arguments. The process is clear: there is a Budget to come and that's when the decisions will be made."

He told BBC Radio 4's Today programme: "I listen to all my backbenchers all the time.

"David will use his own words but I think if you read that column you can see that he is saying there are dangers that if people treat capital gains as income, you are going to have to have a problem with tax evasion.

"I am afraid you are going to have to wait for the Budget for the decisions but do I understand the importance of encouraging entrepreneurship in our country? Of course I do. Do I think that high marginal tax rates are a mistake? Of course I do.

"We understand these arguments. We have to raise some modest amounts of revenue in order to raise the income tax threshold - which we think will help, particularly, low-paid people.

"All the arguments people are making are taken carefully into consideration."

He did reiterate the commitment to protect entrepreneurs from the changes.

"We need a country that really fires up entrepreneurship," he said.