Peter Jackson column

Oct 23 2003 By Peter Jackson, The Journal

According to the latest figures there is an increasing gap between Government revenue and expenditure.

Official figures show that for the first six months of the year the budget deficit has reached £22bn, against the Chancellor's forecast deficit of £27bn for the whole year.

This has happened because Government spending has risen by more than 10pc, while tax receipts are going up by only 6pc.

There is no escaping the laws of arithmetic. As Mr Micawber pointed out: "Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

So now, forecasters are saying it is more likely Gordon Brown will have to increase taxes ahead of the next General Election. Either that, or he will have to turn his back on prudence and increase borrowing.

I should point out here that the Treasury has denied that fiscal targets are off course, but clearly things are not as comfortable as they once were.

Which forms the backdrop to other reports over the weekend that the Government is looking at plans to levy capital gains tax on the sale of a principal private residence.

Again, any such plan has been denied, but I still suspect that it's an idea that will not go away.

For one can see tempting arguments in its favour. Most European states tax such sales. Our housing market perennially overheats and raising interest rates to cool it is not always in the best interests of the rest of the economy. Anyway, the Government has - rightly in my view - given up its immediate control over setting rates.

Given that the capital gain often represents an unearned windfall over a short period of time worth several times the average householder's annual salary, why should the Government not get its slice of the action? Especially as first time buyers are being priced out of the market in many parts of the country.

And the Government could sweeten what would undoubtedly be a very bitter pill. It could, as in Germany, only levy the tax on a property sold within 10 years of having been bought. Or it could only tax properties worth over say £500,000.

Personally I think it would be a very bad idea indeed and electorally damaging. The problem with any tax or charge, as the Government is finding with tuition fees, is that if you try to limit its effects to the better off, it is generally not worth introducing. Only taxing properties above £500,000 would leave untouched the greater bulk of the cash sloshing around in the housing market and would do little to reduce its volatility. Also, to tax only properties held less than a certain length of time could still do great damage to labour mobility.

Finally, people in this country are deeply worried over the value of their pensions. They are told that equities have let them down and are unlikely to recover in time to pay for the Saga holidays.

No, people now regard their homes as their pension and any threat to tax them will be received very badly.