A few thoughts....
This whole CGT reform exercise has been extraordinary, coming as it does from the government that introduced taper relief in the first place.
As you rightly point out, Gordon Brown deserves his due for introducing taper relief, as an excellent incentive for investment in businesses.
Hundreds of thousands of people invested in business assets assuming that taper relief would be applied to any capital gain that they made. I believe that they have a legitimate expectation that the government that introduced the incentive would allow them to benefit.
What caused the Treasury to move the goalposts after almost ten years? As well as the concern over the “private equity fat cats” it has been reported that “the cost of taper relief had risen 10-fold in four years to more than £6 bn, far more than the Treasury had anticipated”. It seems likely that the Treasury was becoming worried about this perceived loss of revenue.
If you consider this further, a “loss” of £6 bn (I believe this was calculated on the basis of the tax that would have been raised at a 40% rate of CGT) means that the government was actually making some £2 bn a year from CGT paid on gains on assets eligible for taper relief. The Treasury evidently views the world from the “glass half empty” rather than “glass half full” perspective. It would be interesting to know what percentage of the £6bn “cost” arose from private equity deals. CGT receipts in 06-07 were £3.8 bn, so it seems that about half of the receipts come from assets eligible for taper relief.
According to the 2006 and 2007 Budget Reports rising CGT receipts were at least partly due to the “maturing” of business asset taper relief.
It seems to me that the 10% rate of CGT on assets eligible for taper relief was actually leading to an increase in tax revenues, but the Treasury did not have the nerveor the common sense to follow through on this. I believe that in other countries, reducing tax rates on e.g. corporation tax has led to an increase in tax receipts. Removing taper relief may well result in a fall in CGT revenues, the opposite of what Alistair Darling is seeking.
How to separate the “Honest start-ups” from the “City bastards”? One possible approach would be to offer taper relief to those investors who invest in a company BEFORE it gets to the kind of size that will interest those in the city. This could be done using the investment limits currently being applied to Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) investments; for investment of funds raised from 6 April 2006, the value of the company’s gross assets must not exceed
• £7 million immediately before the investment, and
• £8 million immediately afterwards.