CGT – politicians, what a bunch of tossers

Anyone skimming the posts on this site will be left under no illusion as to just how little we think of modern politicians, of whatever party political stripe.

But, even by the modern day standards of inept law making, we now have the early reports of a potentially ruinous volte-face by Alistair Darling and Gordon Brown reported in today's Times (although not, as yet, accompanied by anything more weighty from an official Government source – fat chance !).

Out of nowhere, and apparently as way of clamping down on those nasty private equity scumbags, we had the proposal in the PBR to introduce a single rate of CGT of 18%; a proposal which, in an act of stunning political incompetence, has upset just about everyone except for the private equity sector. Then, we have the ... "no, no, no, I'm not changing anything" spiel in the face of representations not just by one lobby, but by a combined lobby including the unlikely pairing of the CBI and the FSB.

Now, barely three weeks after the PBR and a whole five months before the proposal finds it was into a Bill let alone on to the statute book, we have the first "leak" of a back down, with the apparent announcement that retirement relief will be reintroduced as a sop (and not an undeserved one) to the owner managers who are facing an unexpected increase in their CGT liability on disposal of their businesses.

But, it gets worse. The proposal, as reported, is to set the "new" retirement relief exemption at not higher than £100,000 on the ground that the rate of tax, at 18%, will be lower than when the previous retirement relief began to be scaled down in 1999. Back then, an indexed gain of up to £250,000 would be wholly exempted from CGT for the typical "retiring" owner manager. From next April, it appears that we are now looking at an unindexed gain of up to only £100,000 being exempt. So, whoopee-doo, almost ten years ago, a real gain of £250,000 would be tax free but, now, only a gain of £100,000 will be exempt and that will not even be a gain represented by a growth in real value but one including a measure of inflation. This could, therefore, prove the ultimate in fiscal drag; abolish a relief, wait until you think no one remembers and then reintroduce the relief but at a fifth of its real value. And this is before we remind ourselves that the rules for retirement relief were far from straightforward anyway, meaning that any re-enactment of the old rules will represent a big complication to a proposal which had superficial simplicity as its only positive to start with.

It will remain to be seen what follows, but we expect this proposal, now to amend a proposal that was absolutely not going to be amended, will do nothing but open the floodgates to more complaints, create more unwelcome uncertainty, fuel the lobbyists and prove to be the beginning of the end for an announcement which, even in the small hours immediately following the day of the PBR, looked to be so badly flawed, and in so many respects, that it was an obvious non starter.

The disappointment here is that, only as recently as July this year, we had a new Chancellor pronouncing over the undesirability of knee-jerk fiscal legislation and the need for proper consultation, and we thought he might mean it; after all, the Chancellor was once a lawyer and might, therefore, be expected to remember some of his legal theory studies. But, no, only 5 months later, we may as well have been lumbered with a newly promoted Dawn Primarolo for all the difference it seems to have made; at least then we would have known we were dealing with a proven third-rater rather than having to find out we were dealing with a new one (albeit one with smaller balls, and less of a moustache).

With the proposal for a single CGT rate being made in the name of simplicity, perhaps we should look to Albert Einstein who once said ... "everything should be made a simple as possible, but not simpler" and apply this as a test for our politicians and the laws they make.