Shock Capital Gains Tax rise angers hardline Conservatives

David Cameron is set to anger Tory traditionalists by approving a big rise in capital gains tax (CGT) to close a bigger-than-expected "black hole" in the public finances.

A "top-to-bottom" audit of public spending will be launched by the coalition government today by a new independent Office of Budgetary Responsibility, headed by Sir Alan Budd, a former Treasury chief economic adviser. It will shape the emergency Budget expected next month.

Mr Cameron appears ready to bow to pressure from his Liberal Democrat partners for CGT on the sale of shares and second homes to be raised from 18 to 40 per cent. Although there would be generous exemptions for entrepreneurs, the move will worry some Tory MPs, who fear it will alienate the party's natural supporters.

The Prime Minister told the BBC's Andrew Marr Show yesterday: "When you have a capital gains tax rate of 18 per cent and a top rate of income tax at 50 per cent, you'll find people finding all sorts of ways to treat income as capital gains. Now what we've said is there is a very big difference between the capital gains that someone pays on, say, a second home – which is not, you know, necessarily a splendid investment for the whole economy – there's a difference between that and actual investment in business assets."

He said the proposal was part of a "fairness agenda" that would help the Government's goal of lifting tax allowances to take more people out of tax – a flagship Liberal Democratic manifesto pledge. " I think people will understand," he added.

The Liberal Democrats hope the CGT shake-up will be included in the first Budget. But George Osborne, the Chancellor, thinks more work is needed and has asked for more options to be drawn up.

The Treasury said: "There are a range of possible options on CGT to fulfil this aim and no decision has yet been taken on one option. It will be important to take the time to get this right."

Yesterday, Mr Cameron said the Government had "no plans" to raise VAT, despite growing speculation among economic experts that it will go up from 17.5 to 20 per cent. But a final decision could depend on the report of the nation's books by Sir Alan's team.

There are growing signs that ministers in the coalition want to "bite the bullet" by implementing big cuts as soon as possible in the hope that they can be blamed on their inheritance from Labour. Yesterday, several Tory and Liberal Democrat ministers complained that outgoing Labour ministers had deliberately left behind "poison pills" and "stink bombs" by rushing through big spending commitments just before this month's election.

The new administration will halt some of Labour's decisions, but others may prove too expensive to unravel. Yesterday, David Cameron announced a curb on generous bonus payments for 4,200 senior civil servants and 1,100 senior NHS managers. They will be restricted to the top 25 per cent of performers, so 1,700 Whitehall officials and 450 NHS managers will no longer receive bonuses, saving about £15m.

The average bonus for a top civil servant was £12,700 last year. Some 2,933 officials and 850 health managers received extra payments totalling £35m.

In another clampdown, the left-of-centre economics commentator Will Hutton will advise ministers how to implement plans to ensure that no one at the top of a public-sector body earns more than 20 times its lowest-paid person. This is a sign that Mr Cameron will recruit so-called "goats" from outside Tory circles to create a "government of all the talents".

Ministers claimed they had already found "black holes" in the budgets left them by Labour. The projects said to be causing alarm include a £13bn tanker aircraft programme for the Ministry of Defence, a £1.2bn immigration service IT project, and school building contracts worth £420m.

'Goats' in the machine

*WILL HUTTON

Left-of-centre economics commentator, executive vice-chairman of the Work Foundation think tank. Will head a "fair pay" review to implement Tory pledge to ensure no senior manager in public sector earns more than 20 times the lowest-paid person in the organisation. Former BBC economics correspondent and editor-in-chief of The Observer.



FRANK FIELD

Veteran Labour MP for Birkenhead in talks with Government about becoming an adviser on poverty. Free-thinking reformer; unhappy year as Welfare Reform Minister in 1997. Labour said his ideas were unworkable. May get a chance to put them into practice with Iain Duncan Smith, Work and Pensions Secretary. Favours tough line on immigration.



LORD BROWNE OF MADINGLEY

Former chief executive of oil giant BP. Crossbench peer heading review into university finance. Tipped for Whitehall role overseeing drive to cut waste. Could be "super-director" to push through spending cuts and higher productivity.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Tradewind Recruitment: English Teacher

Negotiable: Tradewind Recruitment: This post arises as a result of the need to...

Tradewind Recruitment: Class Teacher Required ASAP In Uminster

£120 - £150 per annum: Tradewind Recruitment: I am recruiting on instruction o...

Ashdown Group: Head of Finance - Financial Director - London - £70,000

£70000 per annum: Ashdown Group: Head of Finance - Financial Controller - Fina...

Ashdown Group: Marketing Executive - Wimbledon, SW London

£24000 - £28000 per annum + benefits: Ashdown Group: Marketing Executive - Wim...

Day In a Page

Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore