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
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Recruitment Genius: Office Administrator

£20000 per annum: Recruitment Genius: Due to expansion, an experienced and hig...

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Plumbing & Heating / Bathroom Trade Counter Sales

£22000 - £26000 per annum: Recruitment Genius: This well established London ba...

SThree: Trainee Recruitment Consultant - Dublin (based in London)

£20000 - £25000 per annum + commission: SThree: Real Staffing's Pharmaceutical...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat