Increase in CGT will drag revenues down: think-tank warns

British Government stands to lose £2.48 billion in revenues if it goes ahead with its plans to increase capital gains tax (CGT), a leading think-tank warns.

Finance Minister George Osborne is expected to announce increase in several taxes in emergency Budget on June 22. Speculations are flying high that Mr. Osborne would increase CGT from current 18 per cent to 40 or even 50 per cent. VAT could also be increased from its current rate of 17.5 per cent to 20 per cent.

But the Adam Smith Institute has warned that increase in CGT would reduce the amount of capital, which would pave way for lower levels of consumption and employment. Reduction in consumption and employment would drag tax revenues down.

The report published by the think-tank also said that the fall in tax revenue would be equal to 30,000 additional public or similar cuts. It estimated that pushing CGT up to make it at par with income tax would result in a £880 million drop in revenue, plus income from other taxes would fall by £1.6 billion due to the impact on economic activity.

The institute added that analysis of CGT increases in other countries have proved that every 1 per cent increase in the rate of CGT drags revenues down by 2 per cent.