I have been asked to comment on the proposed reform of capital gains tax put forward by Dan Neidle, the lawyer who was formerly the head of tax at London legal mega-firm Clifford Chance, in which role he spent much time attacking those promoting tax justice, and who now runs his own think tank called Tax Policy Associates.
Dan Neidle's proposed reform can be found here.
At the heart of it is a suggestion that the rate of capital gains tax should increase because it makes no sense that gains should be taxed at less than the rate attributable to work.
But then he suggests that the resulting rates would be much too high because (and I quote):
Economic theory says that, if investors put capital at risk, we shouldn't tax them on the “normal return” (i.e. the risk free return, broadly equivalent to bank rates). If we do, we discourage investment – the investor has done worse than if they'd put cash in the bank, but we're taxing it anyway.
We should instead only tax the “super normal return” (i.e. if an investor's investment pays off).
And therein, we see what Neidle is really doing. Superficially, he is saying rates must rise. Actually, he is saying we really should not tax most gains at all, meaning that yields from this tax will fall. He admits that in his paper that effective rates of tax will be very much lower than the supposed headline rate. I think we can assume that he thinks that a strength.
He is, incidentally, also using this line that "normal returns" should be tax-free when considering the taxation of profits and savings. Everywhere you look in Neidle's suggestions this seems to be his line on tax reform, except, of course, when it comes to income from work.
There, I cannot find a suggestion that the "normal return" to labour should be tax-free. Isn't that odd? Surely he has made some mistake? After all, there must be a normal return to work? Might we call it the median wage? Maybe it's the mean wage? And shouldn't we, then, expect that only returns above that sum be taxed, and very heavily in that case, to make good the shortfall?
I can't see Dan proposing that because it would seem from what he suggests that, in his opinion, only the "normal returns" of the wealthy should be tax-free, however large they might be, and however great the cost to society of granting this exemption is.
So, let me be candid and describe Dan as exactly what he has always been. He is a very bright and very well-trained lawyer who has often advanced the cause of the wealthy, as this proposal does. Everything he says should be read in the light of this.
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Thank you for the insight. Have always been a bit leary of his posts.
This article,
https://www.theguardian.com/uk-news/2024/oct/17/millionaire-business-owners-urge-rachel-reeves-to-raise-14bn-from-rise-in-capital-gains-tax
where many millionaire entrepreneurs make the point that CGT rates are irrelevant to their investment decisions, would seem to directly contradict Dan (and the “behavioural algorithms” of HMRC).
The entrepreneurs are calling for rises in CGT to equalise rates with those levied on income. I think you are slowly winning that argument.
I think any sensible £billionaire can see the pitchforks coming & would be trying to divert them accordingly.
Though, seeing that, the choice to double down rather than to consider whether they should actually re-place largely ill-gotten gains back into public benefit, is an interesting indicator of … what? … psychopathy? Narcissism? Grandiose entitlement? Misanthropy? …
Seeing the conditions for pitchfork sharpening and pitch-torch manufacture arising, should surely make one suspect that a modicum of self-reflection and asking the question “Do you think we might be the baddies?”
Andii, they need to have an environment they can spend their money in. If this is the one they’re used to and comfortable in, they’ll want it to still be there after they’ve made their money, even if that means making a little bit less than they otherwise might. Plus it’s the golden goose for them. If you earn a great living from running a battery farm, you don’t want to be spending your money killing off the environment which supports the chickens, something I suspect a lot of the wealthy are too short-sighted to grasp.
We have a tax free allowance (for most people) so that neatly aligns with not taxing the ‘normal’ return from labour.
No it doesn’t
And Neidle is not proposing abolishing allowances on CGT and savings
So, you are trolling
What a surprise
People returning to work get taxed with no personal allowance. So it is actually worse than that.
It is rectified in retrospect, but given the financial hardship that people can encounter when entering or moving back into the workplace, it is unjust. Especially when factoring in transport poverty, and the other expenses that go with regular full time employment.
Yes, emergency tax is a reality for anyone returning to work, or starting work for the first time. It is punitive and takes time to get retrieve.
I run a payroll bureau.
Someone starting or returing to work is usually put on the correct tax free allowance by the second payday.
As I said, pretty quickly….
“People returning to work get taxed with no personal allowance.” No, they don’t.
They can, in fairness
But it is usually put right pretty quickly
My son, doing temp work, mostly with agencies handling his pay, has regularly found himself on emergency coding, and the agencies are VERY slow to correct it.
You hit the nail very clearly on its head. Whenever someone makes a recommendation they’re always speaking on behalf of someone. Sometimes, euphemisms for the wealthy are useless, such as “in the national interest” or for “the good of the country”, both of which means “for the wealthy”. Other times, abstractions are used, like “normal returns”, which deliberately seek to obfuscate on whose behalf someone is speaking. Generally speaking, poor people don’t have platforms, so media reporting generally will be the voice of wealth and power. It would be interesting if there were broadcast outlets for those on the lowest incomes as significant and far reaching as those enjoyed and abused by the wealthy. How the world is and appears might be somewhat different.
Would be helpful is there was a good working definition of “capital gains”.
a) the casino/stockmarket – contribution to the economy – zero (arguably destructive – witness the elimination of UK companies – through takeover).
Problem taxing capital gains: synchronised whining from pension companies (does one make them a “special case”?).
b) Person X founds a company, employs people, grows the company, eventually sells out (old/tired/wants to do something diff etc).
Should “b” capital gains be treated like “a” capital gains?
Do we want a mixed economy where capital is used “usefully” however this is defined & capital gains tax is focused on casino aspects?
As for Mr Neidle, he would seem to be a servant of the rich – a Jeeves to their collective Bertie Wooster. I hope that makes him proud – being servile.
Your categorisation is useful
But, open to abuse in (b) as things stand – especially by a second generation
I’m sorry, Mike, but I cannot see why the source of the capital gain makes the slightest difference. For me, what matters is the benefit to the individual. If the individual makes a capital gain it should be taxed in the same way as every form of income.
If you are suggesting that people would not do the work and investment into a business that is necessary for them to make profits during their businesses life, and then sell it at a profit, if they have to pay some tax on that profit, I cannot agree. That is analagous to suggesting that employees will not take on a job because they have to pay tax on some of their income.
What a huge disappointment.
Smothered by Neo-liberal economic bullshit again.
You see this approach or ‘device’ every time.
First – there is an acknowledgement of a problem and seemingly liberal view of it is presented. The liberalism on display here is about fairness and a wider perspective. These qualities are even affirmed in someway.
Second, then the liberal view is narrowed down more specifically so that which has been affirmed is almost by magic attributed to the individual wealthy only. In a blink of the eye!
Thirdly – the pure ‘objectivity’ of trickle down economics is used to put a lid on the argument and securely screwed down. The coup de grace.
Neidle once in an interview fully accepted – nay – ‘confessed’ that his own view on these matters has been influenced by the obscene amounts of money he was making at the time for enabling this behaviour.
Money is a corrupting influence and Dan the Man seems to be the epitome of this.
Corruption is the new air we are being made to breath.
It gets worse.
The IFS recently published a paper on CGT reform – more about the tax base than tax rates, which they agree are too low – and on the webinar on their paper they agreed that the “normal return” of income on investments should also be free of tax – so for example interest on lending and dividends on shares should be only be taxed to extent they exceed the base rate. Because you know taxing the “normal return” is distortive and deters investment.
Query the extent to which most lending (eg bank deposits) or shareholdings (eg listed shares) represents “investment” anyway.
Perhaps taxing the “normal return” from labour also distorts the market and deters work. (Maybe we have to live with that and anyway most people need to work to eat so hard lines to them.)
But we have to be grateful that the analogy with “normal returns” to capital being free of tax means we don’t tax the increase in an individual’s human capital when they become more skilful or get further or higher education or obtain work related qualifications.
Seriously, that is the sort of thing they give as an answer.
Slides and video here. https://ifs.org.uk/events/should-government-increase-capital-gains-tax
Thanks
This idea is very dangerous
Your analysis is, I`m sure, faultless. However, you are posting on an open platform, not necessarily confined to economics. `Labour` is people, such as the lady chainmakers of Sheffield. A well-academically qualified friend who has worked in `metal-bashing` has proposed that many industries, his instance was building, are so well-versed in their `trade` that their expertise would qualify them for a BSc. As opposed to historian `doctors`. How does Physician Associate David Starkey appeal to you? I`m sorry, the actual cold-bloodedness of economic theory makes me uncomfortable. X may have y to eat. Cf Israel Palestine. All of us are due a voice which the English parliament does not provide. As to Farage, yes , `we won the war`. My father, Lancaster pilot aged 20, bombed Germans and became a GP as soon as he could after discharge. We can`t possibly go on like this? I hope I`m wrong, but the entirety of economics seems to be about the credibility of dubious assets, whether they be odd metals or crystals, or promissory notes. I know there is a world beyond that, but for most of us access is denied.
Thanks
If the suggestion is that “normal returns” are tax exempt surely the corollary is that all loan repayments (mortgages, car loans, credit card bill, insurance policies spread out over the year, etc) should be tax deductible but you can be pretty sure that won’t happen.
An interesting idea
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Does the guy live solely on fresh air?
He might have earned a million or more a year as a senior tax lawyer for many years
Can I get the “normal return “ to the money I have in the Building Society tax free?
That is apparently the suggestion being made
I aasume that the Neidle proposal is that all investment returns should be untaxed if they are lower than the real rate of interest, and that represents “normalcy’.
So only high(ish) returns on such “risks” ought to be taxed. Hmmmm…
Many enterprises have low rates of return – supermarket retail typically quotes 2-4%.
Most personal savings accounts, the non ISAs, have marginal returns below the difference between inflation and the headline base rate, which would then also become non taxable.
Many speculative casino trades are based on very low % returns but on high volume trades.
Applying Dan’s plan, based on a highly speculative interpretation of investment theory, none of these should be taxed.
Even assuming agreement on which rate of inflation is regarded as the benchmark, a difficult decision with a constantly moving target, any enterprise can then employ accountants or tax lawyers, to write down assets more quickly, and otherwise increase their cost base, so as to reduce profit margins.
As a principle it is an invitation to reduce the government tax revenue take by a huge amount.
As a piece of dogma it is entirely biassed to increase inequality.
As a workable proposition it is clearly another laissez fairey.
Great post, Richard. I think indexing capital gains for inflation (which used to be part of the CGT system) would work better than an allowance for “normal” returns.
I always opposed indexation – a profit is a profit is a profit when it comes to income – why not then when it comes to assets?
Please can you explain why this proposal does not apply to earned income. Most employees get an annual cost of living increase. In other words their pay is increased to keep pace with inflation. Why do they pay income tax on the cost of living increase?
Delighted to hear the video of Richard talking about unemployment and in particular the role of the Bank of England in using unemployed people as a buffer against inflation. It’s likely about a lot more than just being “against inflation” but also holding down wages, hampering trade union organising and keeping people insecure.
We really need to talk about this much much more because the Right wing narrative that people choose to be unemployed has really caught on with very many people. It runs right through the comments Rachel Reeves makes about “people who can work, should work”.
According to my research, 1.5 million people are registered as unemployed and in receipt of the pittance that is Universal Credit (a maximum rate of £393 a month for adults over 25) and 1 million people who are looking for work but don’t claim UC. These people are competing for (at the last count) 841,000 job vacancies. Necessarily then there isn’t enough work for 1.6 million people. And that’s before we consider all those on sickness benefit which the government is under pressure to move into work.
Labour of course will be reluctant to admit we have an unemployment problem and they have been foolish to ignore for so many years that we have one. The Right wing media will obviously play their duplicitous games as to who is to blame and what is to be done about it just like they did in the late 70s. But restart the conversation again we must since this situation puts many people in a very difficult position.
One thing I would say however is – and I hesitate because I know Richard feels very strongly about it – I really don’t think we need the numbers of people from abroad coming into the labour market that we’ve had. It must necessarily mean increased competition for the existing jobs and thus more “losers” in that competition. This was evidenced by a study from South Yorkshire cited by the Guardian’s Larry Elliot on 6th October.
If we persist with this policy than it gives credence to the claim that these new people are “doing the jobs British people won’t do because they’re lazing around on benefits”. That wasn’t true in the early 00s and it isn’t true now. Job Centre Plus is set up in such a way that Universal Credit claimants cannot refuse work offered to them both in terms of the process and the rates of benefit they receive. The latter is literally designed to force people into work on pain of destitution.
But those people create their own work
Most of what we do is serving each other iun some way
Thery don’t take work away, they create new markets
I’m highly doubtful that the CBI and IoD continually talk about “labour shortages” if this is the case. Neoliberal big business wants a permanent over-supply of labour or what Marx called the Reserve Army of Labour for obvious reasons. I’ve worked in plenty of sectors with such workers so it must increase competition.
All I’m saying is we should have a pause – not least because a pause would take from the radical Right one of their lines of attack.
As I said to you in an email, I really do think the Tory Right will get plenty of young people to blame the baby boomer generation as a whole for their predicament and it will get very unpleasant with the oligarchy winning and a lot of broken people left behind.
I guess it’s analogous to indexing the personal allowance and thresholds for income tax (this has of course been cancelled until 2028 which is a massive tax increase – and shows that the Labour pledge “not to increase income tax” is total nonsense. Over the next 3 years they will be implementing substantial (real terms) increases in IT by freezing allowances and thresholds. It’s a shame this never really gets discussed in the media.
Agreed
But the CGT allowance has been indexed…
The CGT allowance has been reduced by 75% in the last couple of years.
That’s not being indexed at all!
No, it was recognition that a double personal allowance was utterly unfair.
I cannot see how the tax free allowance is analogous to indexing CGT. If the tax free allowance bears any relation to actual wages there would be an analogy. But all capital gains would be subject to indexing, but only the fraction of wages covered by the tax free allowance would be affeceted if indexation ever returns.
Surely it is simple. All income is taxed at the same rate at the point of receipt. The tax free allowance is the same for all. That would be equitable.
I think there is a lot of misrepresentation here. Mr Neidle was, as you say, a successful lawyer with Clifford Chance and earned a lot of money. This enabled him to leave CC and set up his web site Tax Policy Associates. He is self funded ( and does not even “buy me a coffee” page). I imagine when he was at CC he did his best to mitigate his clients tax liability, the same as I imagine Prof Murphy did when he worked as a Chartered Accountant. There is no evidence the Mr Neidle proposed any scheme of tax avoidance/evasion that was challenged by HMRC.
He is now producing a series of posts on tax reform to encourage a debate on the issue. Prof Murphy is doing the same thing. The post on CGT is one of those posts and surely, should be welcomed as part of that process. One does not have to agree with the lengthy argument ( or even understand it all) to see that it is a well set out piece by an expert on the subject of tax.
So it’s disappointing to see some of your contributors suggesting that Mr N is corrupt. PSR (I always use my real name to contribute) says “ Money is a corrupting influence and Dan the Man seems to be the epitome of this” Mr Parr’s final paragraph end with “…he would seem to be a serve t of the rich…I hope that makes him proud – being servile”. Prof Murphy agrees with this categorisation.
Mr Willetts implies that Mr N is speaking for some one else’s interest. Why not assume that he is not captured by another interest and that he is speaking for himself.
Mr Bruce should have done some simple research to find out the Mr N requires no external funding.
“tony” (is that his full name) seems not to know that the topic is CGT.
Most of your commentators do address the subject of reform of CGT but your approach to Mr N’s suggestion seem to invite an ad hominem attack on that person
I think you are being naive James.
You are ignoring the fact that Dan can be self-funded because of the enormous sums he was paid in the past for legal advice when a partner at Clifford Chance.
I will never, ever, say they were involved in tax evasion – because I have absolutely no reason to suggest that they were.
But were they intimately involved in offshore? Yes, of course they were. And I spent years criticisng the use of offshore – as did others – and Dan never wasted the chance to criticise what we were doing and to say it would not work. Time and again he criticised us – and yet he now makes proposals based on our achievements.
So, sure we can question the source of his funding.
And I was not openng up a situatioin where ad hominems might be offered – Dan did them for years when I never once thought him on the side of tax reform, and always on the side of the wealthy despite his membership of the Laboiur Party durinmg that time.
As I have said, I can embrace a sinner who has reformed. But candidly, his proposals give no indication of that. He is still decidedly on the side of the wealthy.
I will add this.
For me tax rules are rather like the finance sector anyway – the language is difficult and sometimes impenetrable but I believe that the outcomes are relatively simple – which is why they have to be coated in words. My feeling is that our tax system is an open door for abuse for people with deep pockets and good lawyers because the system is set up to help rich overlords and not the general population.
I read and “enjoy” both your work and Dan’s work – and find bits that I agree with in both.
I’ve always struggled to hold really strong opinions, and tend to be persuaded by whichever is the last piece I have just seen. Probably a relic of my childhood of everyone should share and be nice to each other.
May I explain, for the benefit of the poster James Hanlon, which I assume is his real name, that the aim of my post commenting on the Neidle proposal :-
“that all investment returns should be untaxed if they are lower than the real rate of interest, and that represents “normalcy’’.
…. was to point out some of the implications of applying the underlying principle he wishes to set for taxation of capital gains.
The concept of an automatic allowance for “normal” rates of return on capital would evidently have to be applied to all means of achieving capital growth in an even handed tax system.
Richard’s tax principle of fairness applies. That is what his blog is about.
I assume Mr Hanlon accepts that the base rules for taxation, are not divorced from their operation, and are open to criticism, or is he merely point scoring ?
I suspect he is just trolling, albeit at a slightly more sophisticated level than most
But like trolls, he was here to defend the status quo – or privilege as it is known.
“Only the little people pay taxes” and people like Dan will work to ensure it stays that way. They capture Government and Treasury officials so that the rich get all the tax freebies while the little people get their allowances frozen.
Professor Murphy,
Ref your response to my earlier comment. You say that I was ignoring the fact that Dan was self funded because of the enormous sums he was paid. The first three sentences of my post state that I know why he could be self funded.
I have no flag to fly for Mr Neidle. I find his blog interesting, as I also find yours. Some of the “stuff” that both of you post on is beyond my limited understanding of tax or economics but I am attempting to educate myself in these matters. Also, as you know, Mr Neidle is an active tax campaigner, responsible for questioning the tax affairs of Nadhim Zahawi that ended with the Conservative party chair being sacked. He also forced the Solicitors Regulation Authority to warn the profession against pursuing “abusive litigation” by means of SLAPPS. So, I feel we can embrace a sinner who has reformed.
My reason for my first post was not to agree or disagree with Mr Neidle. I was concerned that some of your commentators were saying he was corrupt or servile. I think that just because you disagree with someone’s views, that have been clearly expressed, that you should insult them.
Ref your last post: I can assure you that I am not a troll. This post is only the third post I have ever sent to your blog over the years I have followed you. I use my real name (yes, it is my real name, unlike lower case “tony “) and you misinterpret my original post to say I was defending the status quo. Nothing was further from my mind.
Ok
Thanks
But Dan is promoting something profoundly unjust
I will demonstrate soon
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