Indexation of capital gains - a critique of the Budget proposals

The Inland Revenue must derive a certain degree of satisfaction from the fact that it took the City the best part of a week to appreciate that one of the more obscure sections of the 1982 Finance Bill had overnight ended its favourite pastime of bed and breakfasting-a most skilful exercise in obfuscation. The introduction of an innovative feature into British Tax legislation, the indexation of capital gains, has thus been clouded in confusion and uncertainty; subsequent discussion has, as a result, been distracted from the fundamental considerations of whether indexation per se is a desirable feature of a tax system to an examination of the technicalities and anomalies of the Government proposals. This, of course, is a recipe for a piecemeal extension of indexation to other areas of taxation at a later date without prior evaluation of the basis for or implementation of reform. This note does not attempt to rectiry this omission: it examines th specific proposals of the Finance Bill avoiding any more basic questions of principle.