'This is economic self-harm': Tory fury as tax watchdog urges Rishi Sunak to milk their middle classes voters with £90billion capital gains raid on property owners, savers and investors
Rishi Sunak was warned against inflicting 'economic self-harm' today after the tax watchdog suggested middle-class savers and entrepreneurs should face a multi-billion-pound tax raid.
The Treasury's independent tax watchdog has recommended a major overhaul of the capital gains tax regime on the sale of assets, which could triple the number of people hit by the duty.
In a report published yesterday, the Office of Tax Simplification said rates should aligned more closely with income tax bands, as well as cutting annual tax-free allowances.
The controversial recommendations will be examined by Mr Sunak, who is under pressure to repair the battered public finances.
But angry Tories insisted he would be 'pathologically stupid to implement such nonsense', demanding he considers cutting taxes as a way to boost the economy, thus raising more revenue.
The controversial recommendations will be examined by Chancellor Rishi Sunak (pictured lighting a candle for Diwali in Downing Street), who is under pressure to repair the battered public finances
Experts warned investors and entrepreneurs to be on 'high alert for a tax raid' on their finances.
They also fear a big hike in CGT would be a blow to the City, putting people off buying and selling shares in listed companies.
As well as wealthier savers, those who inherit property, second-home owners, buy-to-let landlords and entrepreneurs who sell their businesses could be among the hardest hit by the proposed tax grab.
Responding to the OTS report, the Treasury stressed its focus was on 'jobs and the recovery', having already cancelled the Autumn Budget due later this month.
Former Brexit minister David Davis said: 'The total focus of the Treasury should be on driving the economic recovery. In such circumstances, tax increases like these amount to economic self-harm.
'The Treasury would have to be pathologically stupid to implement such nonsense. What we need now is more saving, more investment, more wealth creation and more job creation. This deeply un-Conservative policy would undermine all of these things.'
Tory backbencher and former Cabinet minister John Redwood said: ‘It’s an extremely good way of lowering the take from Capital Gains Tax and slowing the economy.
‘It’s a very old chestnut and all chancellors have discovered that you need to set it at a low enough rate for people to take gains and pay it.
‘Because people don’t have to pay it; they can sit in a house they don’t really like very much instead of moving, or hold assets they don’t really want very much but they don’t want to pay tax .
‘I have no idea what they are going to do but I think the mood at the moment is we don’t want tax rises. If anything we want tax cuts because we want growth. So I don’t think this is particularly welcome today.’
Tonight experts warned investors and entrepreneurs to be on 'high alert for a tax raid' on their finances
Croydon goes BUST: Labour-run local authority blames Covid as it is on brink of bankruptcy
Croydon Council declared itself practically bankrupt yesterday and blamed its financial crisis on the havoc caused by coronavirus.
The Labour-run south London borough imposed emergency spending restrictions under a Section 114 notice – only the second authority in two decades to face such measures.
As well as the coronavirus crisis, local officials also pinned blame on 'a decade of austerity'.
But the Government last night accused the council of being 'dysfunctional'.
The authority announced yesterday it would fail to meet its legal obligation to balance its books.
It came as a survey revealed that only one in five councils in England are 'confident' of delivering a balanced budget unless drastic action on spending is taken.
The Institute for Public Policy Research estimates the Government could raise an extra £90 billion over five years if CGT and income tax are aligned. Mr Sunak, pictured, commissioned the review into CGT over the summer to establish whether it is 'fit for purpose'.
Capital gains tax is levied on the profits generated from selling assets, from shares and valuable personal possessions to second homes, including inherited property.
The tax is also levied on the profits generated by entrepreneurs and sole traders who sell their businesses. More than 275,000 people paid a total of £9.5 billion in CGT in 2018/19, with two fifths coming from wealthy individuals making gains of £5 million or more. Most savers do not have to pay capital gains tax because they can invest £20,000 a year in a tax-free ISA.
But the OTS has recommended revamping the system so potentially hundreds of thousands more people are hit. As part of this, it has proposed cutting the £12,300 annual tax-free allowance. The number of taxpayers hit could almost triple if the personal allowance is reduced to £1,000, and double if it is reduced to £5,000.
The OTS also concluded that the current rates of CGT were too complex and should be aligned more closely with income tax bands.
Laith Khalaf, financial analyst at A J Bell, said: 'Investors, entrepreneurs and buy-to-let landlords should all now be on high alert. The OTS has teed the Chancellor up to boost Treasury revenues by raising capital gains tax.'
The OECD warned earlier this week that the UK is likely to be the worst hit major economy from coronavirus this year
Measured quarter on quarter, growth between February and April was down 10.4 per cent. During the Credit Crunch the maximum single-quarter fall was 2.1 per cent
Construction has been the worst hit sector of the economy, according to the ONS figures
GDP plummeted by more than a fifth in the first month of lockdown, and has now contracted by 25 per cent since February. In this chart, 100 on the vertical axis represents the size of the economy in April 2016, showing the extent of the fall compared to previous changes since 1997
By James Tapsfield and Antonia Paget for MailOnline
The economy bounced back by 15.5 per cent in the three months to September - but it was already slowing down before the latest lockdown.
Official figures showed UK plc clawed back ground over the summer, as coronavirus cases fell and shops, bars and restaurants were allowed to reopen.
But the recovery tapered off in September, and by the end of the period GDP was still 9.7 per cent below where it was at the end of 2019.
The Bank of England predicted last week that there will be a 2 per cent fall in the last quarter of the year, as curbs hammer activity again. However, there have been hopes of a quicker recovery after good news about the prospects for a vaccine.
The record surge in the third quarter came after a record fall in the second quarter, of 19.8 per cent.
Rishi Sunak admitted that the draconian restrictions to combat the surge in infections had quelled the rebound, but insisted progress on mass testing and vaccines meant there were 'reasons to be cautiously optimistic'.
Official figures showed UK plc clawed back ground over the summer, as cases fell and shops, bars and restaurants were allowed to reopen
On another day of coronavirus-related developments:
ONS spokesman Jonathan Athow said: 'While all main sectors of the economy continued to recover, the rate of growth slowed again with the economy still remaining well below its pre-pandemic peak.
'The return of children to school boosted activity in the education sector. Housebuilding also continued to recover, while business strengthened for lawyers and accountants after a poor August.
Grim milestone as UK's Covid death toll tops 50,000 with 595 more victims in highest daily count since May
Britain’s official coronavirus death toll passed the grim milestone of 50,000 on Wednesday after health chiefs announced another 595 victims in the highest daily count since May.
Boris Johnson said the figures were a stark reminder that the UK 'was not out of the woods yet' despite promising news about a vaccine earlier this week. Officials say Covid fatalities will continue to rise for 'several weeks' due to high infection rates though October.
It takes about three weeks for infected patients to become severely ill and eventually succumb to the virus. The PM labelled every death a tragedy, saying 'we mourn everybody’s who’s gone'.
But despite the gloomy warnings of thousands more deaths, the silver lining is that daily cases are down week on week. A total of 22,950 new infections were recorded — which is 8.8 per cent lower than the 25,177 that were registered last Wednesday.
'However, pubs and restaurants saw less business, after the 'eat out to help out' scheme ended, and accommodation saw less business after a successful summer.'
Chancellor Rishi Sunak, said: 'Today's figures show that our economy was recovering over the Summer, but started to slow going into Autumn.
'The steps we've had to take since to halt the spread of the virus mean growth has likely slowed further since then.
'But there are reasons to be cautiously optimistic on the health side – including promising news on tests and vaccines.
'My economic priority continues to be jobs – that's why we extended furlough through to March and I welcome the news today that nearly 20,000 new roles for young people have been created through our Kickstart scheme.'
Economists have raised hopes UK plc could return to pre-pandemic levels within six months after the bombshell news about a vaccine.
A wave of optimism has been sweeping through scientists and ministers after Pfizer announced that early trials found its jabs were 90 per cent effective.
The government has said the UK - which already has 40million doses on order - could start vaccinating people before Christmas. Leading experts have suggested life could be 'back to normal' by Spring, as long as the government does not 'screw up' the rollout.
The Bank of England gave a grim assessment only last week that UK plc would not return to its level from the end of last year until mid-2022.
But Douglas McWilliams, of the Centre for Economics and Business Research, said GDP could get back to 2019 levels by 'as early as mid-2021'.
He tweeted this week: 'This would give a GDP growth rate next year that might be double digit or close to that.'
Paul Dales at Capital Economics and Simon French at Panmure Gordon brought their predictions for a recovery forward from the first half of 2023 to the beginning of 2022.
Capital Economics said unemployment was more likely to peak at 7 per cent next year, rather than the 9 per cent previously estimated.
In the latest Monetary Policy report, the Bank projected that economy would to shrink by 2 per cent between October and December, but not to go into a double-dip recession - defined as two consecutive quarters of falling.
GDP was predicted to be 11 per cent lower this year in real terms, worse than the 9.5 per cent the Bank suggested in August.
Heat on Rishi Sunak over tax watchdog's plan for a £90bn hit on property owners, savers and investors
Middle-class savers and entrepreneurs face being hammered by a multi-billion-pound tax raid under plans being considered by the Chancellor to repair the public finances.
The Treasury's independent tax watchdog has recommended a major overhaul of the capital gains tax regime on the sale of assets, which could triple the number of people hit by the duty.
In a report published on Wednesday, the Office of Tax Simplification recommended increasing CGT rates by aligning them more closely with income tax bands, as well as cutting annual tax-free allowances.
The controversial recommendations will be examined by Chancellor Rishi Sunak, who is under pressure to repair the battered public finances.
The central expectation was that the economy would not regain its level from last year until the start of 2022.
The Bank also increased its mammoth bond-buying programme by £150billion to £895billion, warning that UK plc's recovery was already 'softening' before the squeeze was announced on Saturday.
Today's economic news came as high street stalwart WH Smith announced today that they had suffered a £226million loss in the past 12 months.
Their pre-tax loss is three times more than analysts feared after forecasters previously described 2020 as a 'write-off' year for WH Smith.
But the 228-year-old company's chief executive said they have a 'robust plan' to help them 'emerge stronger'.
WH Smith said it had lost £226 million before tax in the 12 months to August, a swing from a £135 million profit a year earlier.
Revenue dropped 33 per cent to just over £1 billion, WH Smith revealed on Thursday.
WH Smith chief executive Carl Cowling said: 'Since March, we have been heavily impacted by the pandemic.'
He added: 'While passenger numbers continue to be significantly impacted in the UK, our North American business, where 85 per cent of passengers are domestic, is beginning to see some encouraging signs of recovery.
'In addition, we continue to open new stores in the US and win significant tenders across major US airports.
'In high street, we had seen a steady recovery and we were well set up both in stores and online as we went into the second lockdown. We currently have 558 stores open.
'We have a robust plan across all our businesses focusing on cost management and initiatives within our control which support us in the immediate term and position us well to emerge stronger as our markets recover.'
WH Smith said it had lost £226 million before tax in the 12 months to August, a swing from a £135 million profit a year earlier. Pictured, a store in London in August