The Government’s planned cut to Capital Gains Tax will give an average of £3,000 to people in the richest 0.3 per cent of the population, according to new figures.
Labour, which drew up the analysis, said the tax cut was a “giveaway to millionaires” and that the Chancellor George Osborne was “looking after a wealthy minority”.
In this month's Budget the Chancellor cut the rate of the tax from 28 per cent to 20 per cent for higher rate income taxpayers and 18 per cent to 10 per cent for basic rate taxpayers.
The party’s shadow chancellor John McDonnell has previously highlighted that the capital gains tax cut costs taxpayers about as much as would have been saved by planned cuts to disability benefits.
Those cuts, to the Personal Independence Payment, are now scrapped – following the resignation of the former Work and Pensions Secretary Iain Duncan Smith.
Mr Duncan Smith warned that the Government was balancing the budget on the back of the most vulnerable in society – citing steep cuts to taxes paid by the wealthy which were announced alongside sharp cuts to support for vulnerable people.
A spokesperson for George Osborne told the Guardian newspaper the criticism from Labour of the tax cut was “hypocritical” because CGT would still be two per cent higher than it was under Gordon Brown.
Mr Osborne had raised the tax while in Coalition with the Liberal Democrats – who believed it should be equalised with income tax for reasons of fairness. Now the liberals have left government the tax has again been cut, however.
Mr McDonnell said: “These figures show the priorities of George Osborne. He planned to fund this £3,000 giveaway to 0.3 per cent of the population by taking over £3,000 from hundreds of thousands of disabled people.
“When you consider the small number who benefit from this tax cut or that the pattern of taxable receipts from capital gains tax come from those who trade in financial assets, it blows apart any claim the Tories make about ‘we are all in it together’.
“This crass tax cut should not be going ahead because we need an economy that works for the many, not tax cuts for the few.”
The overall effect of the tax and spending changes in the Budget is distributionally regressive – taking from the poorest and giving to the richest.
The Institute for Fiscal studies said in its analysis that many households in the bottom 20 per cent of earners would end up losing 12 per cent of their income by 2019, while households in the top half of the income scale would not lose anything.
Paul Johnson, the director of the IFS, said just after the Budget: “Raising the threshold for paying higher-rate tax is clearly helping people in the middle- and upper-income brackets, while the cuts to benefits reduce the incomes of families on lower incomes.”
George Osborne 2016 budget at a glance
George Osborne 2016 budget at a glance
1/8 Debt forecasts up, growth forecasts down
The OBR’s new forecasts have downgraded growth in all of the next five years to 2020. The watchdog says the economy will only grow by 2 per cent in 2016, as opposed to the anticipated 2.4 per cent. Borrowing and productivity growth are also down – with forecast borrowing in 2018-198 £16 billion higher
2/8 New tax on sugary drinks
The Chancellor announced a new tax on sugary soft drinks, which is projected to raise £520 million. At least some of the money will be spent on doubling funding for school sport, the Chancellor says. Labour leader Jeremy Corbyn welcomed the levy
3/8 Tax cut for higher earners paying the 40p rate
The Chancellor has raised the threshold for paying the higher rate of income tax to £45,000. The higher rate is paid by roughly the richest 15 per cent, currently people earning over £42,386
4/8 Increase in tax-free income tax threshold
The tax-free allowance increase to £11,500 in April 2017 – up from £10,600 now. The Chancellor previously raised the allowance from £6,475 in coalition with the Liberal Democrats. The Conservative manifesto pledges to put the allowance up to £12,500 by the end of the Parliament
5/8 New devolution for counties and powers for London and Manchester
The West of England, the East of England and Greater Lincolnshire will all get elected mayor-led combined authorities with new powers. The Chancellor says they are backed by £1 billion new funding. Greater Manchester will get new powers of criminal justice while London will keep its business rates – giving whoever is elected Mayor a lot more spending power
6/8 Fuel duty frozen for sixth year running
The Chancellor had planned to end the fuel duty freeze he had put in place for the whole previous parliament. In the event, he has announced a freeze for another year
7/8 All schools to become academies
As reported yesterday the Chancellor unveiled legislation to turn all schools into academies. He said all schools would either be academies or on their way to being academies by 2020, and that funding had been set aside to fund the change
8/8 Lifetime ISA
The Chancellor announced a new savings account to encourage under-40s to save for retirement – for every £4 saved, the Government will top this up by £1 up to the value of £4,000 a year. Tax-free ISAs will also be increased from £15,000 to £20,000
A spokesperson for George Osborne said: “The government wants to ensure that companies can access the capital they need to grow and create jobs. These changes are about incentivising individuals to invest in shares, helping British firms access the capital they need to grow and create jobs.
“For the first time, gains from residential property will be treated differently from other types of investment, attracting an 8 per cent surcharge. The 18 per cent and 28 per cent rates for residential property means the government is encouraging investment in shares over property. That’s a pro-growth, pro-enterprise policy that will boost the economy at a time of global uncertainty.
“We certainly won’t take any lectures from Labour on this: at 20 per cent, the rate of CGT paid by higher rate taxpayers on other types of gain will still be two percentage points higher than it was when they were last in power, and for residential property and carried interest will remain at least 10 percentage points higher. For Labour to complain now is shameless and hypocritical.”Reuse content