I have been asked this question yet again today. I have a five step plan:
1) Increase the tax threshold at which tax is paid by £1,000 for everyone. For most people this will reduce their tax liability by £200 – the value that (near enough) the 10p band gave them;
2) Reduce the standard rate band by £1,000. This will increase the tax take for those on higher rate by £200. This will leave them no better or worse off by these changes. That’s fair. This is not meant to effect them, but will save more than £2 billion in tax.
3) Ensure all capital gains made on disposals of assets held for less than a year are subjected to income tax without offset of the CGT allowance. This might easily raise £1 billion: I suspect rather more since I have shown in the Missing Billions that 17% of all capital disposals are of assets held for less than a year;
4) Deem that all asset sales by a spouse or civil partner who received the asset as a gift from their spouse/partner in the year preceding sale are treated as being disposals by then original owner to stop gains shifting between partners. I suspect this will raise more than £0.5 billion.
5) Ensure that every stock broker in the UK has to automatically supply data on share sales made by a UK resident person to HMRC. At present share sales of little more than £5 billion a year are reported to HMRC, which is implausible when more than £250 billion of shares are held by UK resident individuals. Automatic reporting would massively increase capital gains compliance. I suspect more than enough would be raised to pay for the cut in income tax for all taxpayers now on the basic rate band, costing about £4 billion a year.
It’s radical, simple and progressive. It’s what the Labour Party should be doing. I suspect someone else will propose it.