Finally the chancellor has got the message: taxing the rich won’t turn Britain around

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It looks like we really do have a common-sense chancellor. John Healey has apparently rejected calls to raise capital gains tax (CGT) at the Budget, amid concerns it could hamper economic growth.

The tax applies to the profit made from selling off assets like a house or shares. But the point is that if you make your money through investments surging in value, you’ll pay a much lower rate of tax when you sell up than us ordinary working shmos do on our monthly salaries. It’s why investor Warren Buffett, who has at various times been the world’s richest man, says he managed to pay a lower effective rate of tax than his office cleaner (he thinks that is and was unfair), and why so many people want the tax to go up.

No wonder people ranging from Labour’s left-leaning deputy PM Louise Haigh to the more moderate Wes Streeting have been arguing for equalisation. Hiking CGT, they say, is “a wealth tax that works”. But does it?

For the record, I believe in a progressive system of taxation, in which those who earn more pay more. I understand why people find it morally reprehensible that there will, this winter, be a hard-up family wondering whether to heat or eat in Tower Hamlets, while a couple of miles away in the City of London the shiny-suited plutocrats will leave their toasty offices for dinners that cost more than the weekly earnings of their neighbours down the road.

The trouble is that while “fairness” is a nice idea, Britain’s debt levels are now so frightening that practicality must come first. As such, the first question any chancellor should ask before either imposing a new tax or hiking an existing one is this: will this make me money?

Equalising CGT won’t. We even have a worked example in this country, courtesy of Nigel Lawson, Margaret Thatcher’s former chancellor.

He announced an increase to 40 per cent, with an indexation allowance, on 15 March 1988. The new rate was scheduled to take effect on 6 April 1988. You can guess what happened next. Advisers and brokers worked around the clock as the targets of the levy flogged shares like God’s own market traders, crystallising the gains they had made before the tax increased.

The Treasury got a nice windfall from that, but receipts then took a bath. “Taking both factors into account, in the next five years following the announcement, the rate increase raised no additional revenue,” said Tax Policy Associates, a non-partisan think tank, which did an analysis of the measure.

In Scotland, the decision has been made to soak the rich by raising its top rate to 48 per cent. Tax Policy Associates had a look at that one, too. It found that this ended up costing John Swinney’s administration £22m. Rich people are quite good at (legally) avoiding tax. There’s a small industry of people set up to help them do it.

Tempting as it might be, “taxing the rich” is not going to fix Britain’s problems. It might, in fact, ultimately make them worse, starving the Exchequer of revenues as the billionaires get on the first private jet outta here.

Mercifully, Healey has read the runes. There won’t be any sleeping easy for the next week – there are still plenty of potential potholes out there for him to fall into – but he’s avoided this one. Good start.

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