The CGT Revolt, What It Really Means

The Capital Gains Tax revolt by the Conservative back benchers is both more and less serious than it appears. This will not bring down the coalition, but that something like this occurs at the beginning of a new government should worry David Cameron.

The Capital Gains Tax revolt is actually quite moderate.  John Redwood's letter, which seems to have crystallised a lot of the latent unease, accepts the need to raise taxes and that "investment" gains may be a good place to raise those taxes - particularly a tax that is so prone to having income being repackaged into gains. What it argues for is the re-introduction of some recognition of a length that an investment was held. In itself this will not reduce the gains by a lot, although it may add some complexity to what was a wonderfully simple tax.

In itself this should not worry the government.  Yes the people who will suffer are high earners who have saved money and invested them into real assets - classic Conservative voters - but they were going to get hit any way, and they knew it.

However this should not have happened so early in the life of the parliament.  After 13 years of opposition the Conservatives are now sitting on the government benches, and issues that Conservative MPs and activists really care about, such as Europe and immigration, are being taken seriously.  There is also the fact that in the first couple of years there is usually quite a lot of scope for movement into government, which should concentrate otherwise rebellious minds.

So why is the revolt happening at such an early stage of a new government?  The Conservative back benches are unhappy.

They are not unhappy with the coalition itself.  After all they had a week before the coalition agreement to work out whether a couple of years of Labour would be preferable to what they have now, and they realised that on balance it was not. So they are reconciled to the coalition.  Of course they would have been happier if there were more Conservative policies and more government jobs for Conservatives, but they knew that with a coalition that these things would happen.

What they are really angry about is why they got to a point where they needed a coalition.  Of course it is easy to complain about the fact that the Conservatives are hurt by the distribution of seats, but this was the classic situation where voters are crying out for a strong Conservative government - and they did not get it.

The problem is that no one is being allowed to admit that the election did not go to plan, that David Cameron failed to get a majority and that pandering to hostile elements failed.  Until that happens they can expect more revolts.