DEBATE: Should capital gains tax be raised and aligned with income tax?

Should capital gains tax be raised and aligned with income tax, as it was under Margaret Thatcher?

YES, says Robert Palmer, executive director of Tax Justice UK

Why should someone who goes out to work for a living pay a higher rate of tax than someone living off their wealth?

It’s an important question, especially in light of the Institute for Public Policy Research (IPPR) finding this week that £90bn could be raised by taxing capital gains in the same way that we tax income from work.

At the height of Thatcherism in 1988, chancellor Nigel Lawson did exactly this, and brought income and capital gains into alignment. However, since then the level at which capital gains tax is charged has been slashed. 

The staggering amount which the IPPR thinks could be raised by returning to Lawson’s approach would help fund the spending splurge announced by Sajid Javid last week. 

Politicians of all political stripes should be able to get behind such a simple and fair measure – Maggie certainly would. We need to end the unfairness of the low-tax lifestyle option to some wealthy individuals.

NO, says Alastair Winter, an economic adviser at Global Alliance Partners

Capital gains tax was introduced to stop people converting into capital gains what would otherwise be income, and thereby completely avoiding tax. 

While this seems reasonable, it is levied on gains on assets purchased out of income that has already been taxed. It therefore represents a form of double taxation, and the lower rate can be seen as a compensatory rebate. 

Another stand-out reason for a lower rate is that capital gains tax makes no allowance for inflation and can be levied when there has been no gain in real terms. 

Capital gains tax also often arises on gains on disposals of businesses that have been created by entrepreneurs. This is recognised by special reliefs and incentives, but not entirely mitigated by them. So as well as being fair, having a lower rate of capital gains tax compared to income tax is another good way of promoting savings and entrepreneurial activities.