For me this highlights the difficulty of labour backbenchers not being able to see the tough choices regarding welfare reform. The grownups in the room are Reeves and Starmer who are doing their best.
Any idea around lifting the 2 child benefit cap would be insanity at this point, the black hole is growing rather than shrinking at the moment.
Eventually they will have to stare down the back benches.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
Yes, I agree with that too and think it's very likely that will happen in the Budget.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
They backed themselves into a corner on tax though to get elected. Any raising of tax now on 'working people' will likely be a nail in the coffin for Labour. It's really difficult to see what will happen, but I can't help think the'll go after minorities, so things like CGT, IHT, maybe pension relief or even the tax free amount etc. Could even be a secondary tier of VAT on true high end luxury items (cars over a value, gold, jewellery etc).
If it were me I'd be going after the huge internet corporations who swerve taxes through sleight of hand, funnelling profits into Ireland and Luxemburg etc. Whack the 2% digital services tax up to 8 or 10% and let them leave if they don't like it. They wont go anywhere.
The 2% brings in an average of 800m a year and will only increase. Multiply that by 4 and there's 3.2bn right there. Boo hoo Bezos and Zuckerburg, but f**k them.
If it were me I'd be going after the huge internet corporations who swerve taxes through sleight of hand, funnelling profits into Ireland and Luxemburg etc. Whack the 2% digital services tax up to 8 or 10% and let them leave if they don't like it. They wont go anywhere.
The 2% brings in an average of 800m a year and will only increase. Multiply that by 4 and there's 3.2bn right there. Boo hoo Bezos and Zuckerburg, but f**k them.
What do you envisage the American reaction would be?
Trumps cronies won't like it so trump won't like it but why should the orange turd dictate our domestic tax policy? He can steal from the poor to give to the rich in his own screwed up country but why should we stand for it? (You're quite right, and I know the answer to my rhetorical question is 'because he can'). It's my impression that starmer had his pants pulled down on this one
For me this highlights the difficulty of labour backbenchers not being able to see the tough choices regarding welfare reform. The grownups in the room are Reeves and Starmer who are doing their best.
Any idea around lifting the 2 child benefit cap would be insanity at this point, the black hole is growing rather than shrinking at the moment.
Eventually they will have to stare down the back benches.
100% agree Jt won't happen though because Starmer hasn't got the bollox
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
what is the rationale behind capital gains tax being identical to income tax when they’re two very different things?
Isn’t the point with capitals gains that it’s a tax on a capital investment, something that by definition requires risk, often cash invested but not always - but always risk, risk of both depreciation or failure as well as potential for growth. I’m not sure why tax on that needs to be anything to do the tax set on “normal” income as they’re quite different things?
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
Can I just say how much I hate this approach of leaking things to test the water on how policy ideas would be recieved.
I know it became commonplace under the last few years of the Tories when they were a complete mess and changing tack every week or so, but I really hoped it would end with the change of government.
If you do proper policy analysis and research there shouldn't be a need for this. Impact assessments, qualitative research, public consultations should give you what you need to know before you get there. Leaking through the press just smacks of policy on the fly. No long term planning or strategy. Just throwing shit at the wall and seeing what sticks.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
what is the rationale behind capital gains tax being identical to income tax when they’re two very different things?
Isn’t the point with capitals gains that it’s a tax on a capital investment, something that by definition requires risk, often cash invested but not always - but always risk, risk of both depreciation or failure as well as potential for growth. I’m not sure why tax on that needs to be anything to do the tax set on “normal” income as they’re quite different things?
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
Business Asset Disposal Relief could still apply to eligible disposals.
Taking your point about risk - there could be an argument that any investment that involves risk should be zero rated, as is any form of gambling. No relief for losses either! Not sure how the Treasury could fill the £20b black hole that would create though.
Bunching all incomings together for income tax purposes could work, with capital losses used to offset tax on all income, not just CGT.
Either way, there has to be a root and branch review of all sources of Treasury income streams to ensure those with the broadest shoulders carry the most weight.
The adverts suggesting you hand over your savings to some stranger to ‘invest’ for you on an elaborate promise tell you ‘your capital is at risk’. Surely that alone is a reason to be risk averse?
The adverts suggesting you hand over your savings to some stranger to ‘invest’ for you on an elaborate promise tell you ‘your capital is at risk’. Surely that alone is a reason to be risk averse?
Yeah I’d be wary of lumping your pensions in any active funds, they don’t tend to outperform the markets and even if they do, they tend to get eaten away by fees. Although, ironically, we might be entering a period where active funds might actually be a decent option.
Groups have to say “your capital is at risk” - it’s a rule by the FCA, because it literally is.
The latest leak seems to be capital gains on primary residences over £1.5m….. yikes!!
What’s the issue with this? Even in the nicest areas of north London you’d still have a wonderfully big house for 1.5 million.
The issues are numerous:
it will mean less people will downsize thereby impacting the housing market. Would hit pensioners wanting to downsize in particular.
Doing it at a level creates a cliff edge.
appears no allowance for inflation, let alone money spent on maintenance, refurbishment etc. how do you even calculate the true gain?
imagine you bought your family home 40 years ago for £100k, now worth £2m. If they tax you on that 1.9m gain at 24%, you’d net £1.4m then to buy again for say £1m your paying stamp duty of £44k. So in effect you’ll have paid £500k in tax to downsize, plus al the other fees……. Literally no one would do that!
Which then has the double effect of less stamp duty collected….
badly thought out in my view. Smacks of desperation.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
what is the rationale behind capital gains tax being identical to income tax when they’re two very different things?
Isn’t the point with capitals gains that it’s a tax on a capital investment, something that by definition requires risk, often cash invested but not always - but always risk, risk of both depreciation or failure as well as potential for growth. I’m not sure why tax on that needs to be anything to do the tax set on “normal” income as they’re quite different things?
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
The fact that CGT is effectively a charge on what is generated through wealth is fundamentally unfair.
If I have £1m in assets and can generate £50k a year in returns, whilst you go out and earn £50k, why on earth should I pay less tax?
Any losses you make on those "risks" can be offset against future gains.
I'm no left winger and really resent so many of the economics of the left, many of which we are seeing suggested now, but people netting more money from wealth than work propagates inequality and is unjust.
The latest leak seems to be capital gains on primary residences over £1.5m….. yikes!!
What’s the issue with this? Even in the nicest areas of north London you’d still have a wonderfully big house for 1.5 million.
The issues are numerous:
it will mean less people will downsize thereby impacting the housing market. Would hit pensioners wanting to downsize in particular.
Doing it at a level creates a cliff edge.
appears no allowance for inflation, let alone money spent on maintenance, refurbishment etc. how do you even calculate the true gain?
imagine you bought your family home 40 years ago for £100k, now worth £2m. If they tax you on that 1.9m gain at 24%, you’d net £1.4m then to buy again for say £1m your paying stamp duty of £44k. So in effect you’ll have paid £500k in tax to downsize, plus al the other fees……. Literally no one would do that!
Which then has the double effect of less stamp duty collected….
badly thought out in my view. Smacks of desperation.
Which aligns to the earlier point about government leaks / pitching ideas. This simple analysis requires no great skill or knowledge and in the real world work at the Treasury would obviously be discussed and considered.
Surely they are floating ‘outrageous’ ideas they don’t intend to adopt because they have a different thing in mind - still painful for some but less so than the ideas today.
The adverts suggesting you hand over your savings to some stranger to ‘invest’ for you on an elaborate promise tell you ‘your capital is at risk’. Surely that alone is a reason to be risk averse?
Yeah I’d be wary of lumping your pensions in any active funds, they don’t tend to outperform the markets and even if they do, they tend to get eaten away by fees. Although, ironically, we might be entering a period where active funds might actually be a decent option.
Groups have to say “your capital is at risk” - it’s a rule by the FCA, because it literally is.
As someone who reviews funds on a daily basis I can categorically say that there are hundreds of funds that outperform tracker/passive funds. And the "fees" for an active fund is usually around 0.8% compared to say 0.1% or 0.2% for a passive one. The extra 0.6% is well worth the difference in growth that you can achieve.
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
what is the rationale behind capital gains tax being identical to income tax when they’re two very different things?
Isn’t the point with capitals gains that it’s a tax on a capital investment, something that by definition requires risk, often cash invested but not always - but always risk, risk of both depreciation or failure as well as potential for growth. I’m not sure why tax on that needs to be anything to do the tax set on “normal” income as they’re quite different things?
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
The fact that CGT is effectively a charge on what is generated through wealth is fundamentally unfair.
If I have £1m in assets and can generate £50k a year in returns, whilst you go out and earn £50k, why on earth should I pay less tax?
Any losses you make on those "risks" can be offset against future gains.
I'm no left winger and really resent so many of the economics of the left, many of which we are seeing suggested now, but people netting more money from wealth than work propagates inequality and is unjust.
Whats the problem with money from wealth when you have already paid tax and spent and saved wisely to put yourself in a decent position.
No CGT on an ISA, a Pension or an Investment Bond. Then there are VCT's & EIS schemes that are CGT free. Put your money into a Collective (OEIC / unit trust) and actively manage it using your annual CGT Allowance and you can avoid a lot of CGT.
My only beef is that the CGT Allowance was reduced dramatically the other year. From £12k to £6k and then to £3k. Increase that to £6k, £8k or £10k and most investors wont pay a penny in CGT.
I see there is once again an article on the front of the Telegraph saying that the tax free element from pensions could be lowered. However does then seem to say unlikely! Still may not want to take chances.
I see there is once again an article on the front of the Telegraph saying that the tax free element from pensions could be lowered. However does then seem to say unlikely! Still may not want to take chances.
It is currently £268,275. Last year is was mooted that they were looking to lower it to £100k. I probably wouldnt have a problem with it being lowered to £200k.....£150k absolute minimum.
Most people it affects are those on Defined Benefit (final salary) schemes. I was speaking to a GP who retired in 2013. LTA then was £1.5m. He increased his lump sum to £375k and had a reduced pension of £56k pa. Was still 105% of the LTA and had to pay an excess tax charge.
Currently dealing with a Hospital Consultant who is looking to take his pension a year early at age 59. Advised him to take the max lump sum & reduced pension. This will give him £54k pa plus £268k TFC.
The adverts suggesting you hand over your savings to some stranger to ‘invest’ for you on an elaborate promise tell you ‘your capital is at risk’. Surely that alone is a reason to be risk averse?
Yeah I’d be wary of lumping your pensions in any active funds, they don’t tend to outperform the markets and even if they do, they tend to get eaten away by fees. Although, ironically, we might be entering a period where active funds might actually be a decent option.
Groups have to say “your capital is at risk” - it’s a rule by the FCA, because it literally is.
As someone who reviews funds on a daily basis I can categorically say that there are hundreds of funds that outperform tracker/passive funds. And the "fees" for an active fund is usually around 0.8% compared to say 0.1% or 0.2% for a passive one. The extra 0.6% is well worth the difference in growth that you can achieve.
Interesting, any resources where I can see this over the long term? Maybe it’s just the boglehead in me, but I’m suspicious of active funds. The reason being I found that the majority of active funds underperform passive over the long term. Would be interested to see data to the contrary and I can change my opinion (and perhaps investing habits).
The latest leak seems to be capital gains on primary residences over £1.5m….. yikes!!
What’s the issue with this? Even in the nicest areas of north London you’d still have a wonderfully big house for 1.5 million.
The issues are numerous:
it will mean less people will downsize thereby impacting the housing market. Would hit pensioners wanting to downsize in particular.
Doing it at a level creates a cliff edge.
appears no allowance for inflation, let alone money spent on maintenance, refurbishment etc. how do you even calculate the true gain?
imagine you bought your family home 40 years ago for £100k, now worth £2m. If they tax you on that 1.9m gain at 24%, you’d net £1.4m then to buy again for say £1m your paying stamp duty of £44k. So in effect you’ll have paid £500k in tax to downsize, plus al the other fees……. Literally no one would do that!
Which then has the double effect of less stamp duty collected….
badly thought out in my view. Smacks of desperation.
Apologies, hadn’t had my coffee, I thought it was about replacing council tax with one that taxes homes above £1.5 million. Which wouldn’t encourage downsizing, quite the opposite.
The latest leak seems to be capital gains on primary residences over £1.5m….. yikes!!
What’s the issue with this? Even in the nicest areas of north London you’d still have a wonderfully big house for 1.5 million.
The issues are numerous:
it will mean less people will downsize thereby impacting the housing market. Would hit pensioners wanting to downsize in particular.
Doing it at a level creates a cliff edge.
appears no allowance for inflation, let alone money spent on maintenance, refurbishment etc. how do you even calculate the true gain?
imagine you bought your family home 40 years ago for £100k, now worth £2m. If they tax you on that 1.9m gain at 24%, you’d net £1.4m then to buy again for say £1m your paying stamp duty of £44k. So in effect you’ll have paid £500k in tax to downsize, plus al the other fees……. Literally no one would do that!
Which then has the double effect of less stamp duty collected….
badly thought out in my view. Smacks of desperation.
+ the issue of record keeping is a complete impossibility. What proportion of home owners have accurate records of expenditure on their home improvements etc especially over in some cases decades
It would be so much easier for everyone if they just said...."sorry, we really do need to fill this black hole & the simplest & fairest way to do it will be to raise Income tax by 1% on basic rate taxpayers & 2% on high rate tax payers"
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
Couldn't agree more with this.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
what is the rationale behind capital gains tax being identical to income tax when they’re two very different things?
Isn’t the point with capitals gains that it’s a tax on a capital investment, something that by definition requires risk, often cash invested but not always - but always risk, risk of both depreciation or failure as well as potential for growth. I’m not sure why tax on that needs to be anything to do the tax set on “normal” income as they’re quite different things?
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
The fact that CGT is effectively a charge on what is generated through wealth is fundamentally unfair.
If I have £1m in assets and can generate £50k a year in returns, whilst you go out and earn £50k, why on earth should I pay less tax?
Any losses you make on those "risks" can be offset against future gains.
I'm no left winger and really resent so many of the economics of the left, many of which we are seeing suggested now, but people netting more money from wealth than work propagates inequality and is unjust.
Take your point on this which is why I think there should be some tax on capital gains rather than nil as somebody speculated above. However:
1 - it is not effectively a charge on what is generated through wealth, as many Capital investments/gains are made heavily through finance/risk, and/or businesses / start-ups. Obviously everyone will have their own takes on this, but from my perspective I'm involved in a small growing business. I could earn a significantly higher salary elsewhere but instead focus on growing a business, including investing in employing people, and trying to pay good salaries. With the long-term outlook that the growth in the business including the potential capital gains (and once upon a time, favourable dividend rates) could potentially mitigate / offset the "lost" potential salary income.
With starting and growing business comes with significant risk and liabilities - very turbulent last 5 years for many businesses! Employee rights, maternity, economic turbulence, IT / property overheads etc etc. This scenario exists across many many sectors.
If the gains just end up aligning with income tax then it de-incentivises people from doing this, de-incentivises competition and overall economic activity. Easier, safer and less stressful to just take the safe option but to the detriment of economy.
2 - as you say in many cases capital gains are generated through wealth - but the example you refer to IS likely taxed at income rates already. If you have £1m in assets and generate £50k a year in returns, that's likely simple bank savings interest or maybe rental income. Both of which are income taxable.
But for a buoyant economy capital investment is essential so if you de-incentivise investment from those with wealth you are cutting off your nose to spite your face. Very simplistically but consider the Anchor and Hope pub in Charlton. A vacant derelict building now. It takes somebody with capital to invest to buy and develop this business if you want this to trade as a pub again (or even be put to a productive use of any kind - Antigallican is flats now I think?). Why would anybody bother doing this if the investment, and all of the risks around it, is just charged at the same tax rate they would pay from having it sat in a savings account at 5% interest as you suggest?
The adverts suggesting you hand over your savings to some stranger to ‘invest’ for you on an elaborate promise tell you ‘your capital is at risk’. Surely that alone is a reason to be risk averse?
Yeah I’d be wary of lumping your pensions in any active funds, they don’t tend to outperform the markets and even if they do, they tend to get eaten away by fees. Although, ironically, we might be entering a period where active funds might actually be a decent option.
Groups have to say “your capital is at risk” - it’s a rule by the FCA, because it literally is.
As someone who reviews funds on a daily basis I can categorically say that there are hundreds of funds that outperform tracker/passive funds. And the "fees" for an active fund is usually around 0.8% compared to say 0.1% or 0.2% for a passive one. The extra 0.6% is well worth the difference in growth that you can achieve.
The difficulty though is for the average person who doesn’t employ an FA and maybe just puts a few hundred a month into an ISA or pension…… they are likely better in a tracker than trying to pick the right managed fund.
Comments
Any idea around lifting the 2 child benefit cap would be insanity at this point, the black hole is growing rather than shrinking at the moment.
Eventually they will have to stare down the back benches.
Eliviate some of the pain by raising the personal allowance to £13k (or even £13.5k) and increase VAT to 22.5%. Then start reducing theses axes over the last couple of years of Parliament.
I would also level CGT with income tax. CGT being lower than income tax is a key propagator of inequality.
He can steal from the poor to give to the rich in his own screwed up country but why should we stand for it?
(You're quite right, and I know the answer to my rhetorical question is 'because he can'). It's my impression that starmer had his pants pulled down on this one
Jt won't happen though because Starmer hasn't got the bollox
If you de-incentivise people taking risks, investing in things, starting businesses, such that in many scenarios they’re actually better off just maintaining a steady secure PAYE job, aren’t you then at risk of creating a stagnant economy with little incentive for innovation, investment, growth?
I know it became commonplace under the last few years of the Tories when they were a complete mess and changing tack every week or so, but I really hoped it would end with the change of government.
If you do proper policy analysis and research there shouldn't be a need for this. Impact assessments, qualitative research, public consultations should give you what you need to know before you get there. Leaking through the press just smacks of policy on the fly. No long term planning or strategy. Just throwing shit at the wall and seeing what sticks.
Surely that alone is a reason to be risk averse?
it will mean less people will downsize thereby impacting the housing market. Would hit pensioners wanting to downsize in particular.
appears no allowance for inflation, let alone money spent on maintenance, refurbishment etc. how do you even calculate the true gain?
imagine you bought your family home 40 years ago for £100k, now worth £2m. If they tax you on that 1.9m gain at 24%, you’d net £1.4m then to buy again for say £1m your paying stamp duty of £44k. So in effect you’ll have paid £500k in tax to downsize, plus al the other fees……. Literally no one would do that!
badly thought out in my view. Smacks of desperation.
If I have £1m in assets and can generate £50k a year in returns, whilst you go out and earn £50k, why on earth should I pay less tax?
Any losses you make on those "risks" can be offset against future gains.
I'm no left winger and really resent so many of the economics of the left, many of which we are seeing suggested now, but people netting more money from wealth than work propagates inequality and is unjust.
Whats the problem with money from wealth when you have already paid tax and spent and saved wisely to put yourself in a decent position.
My only beef is that the CGT Allowance was reduced dramatically the other year. From £12k to £6k and then to £3k. Increase that to £6k, £8k or £10k and most investors wont pay a penny in CGT.
Most people it affects are those on Defined Benefit (final salary) schemes. I was speaking to a GP who retired in 2013. LTA then was £1.5m. He increased his lump sum to £375k and had a reduced pension of £56k pa. Was still 105% of the LTA and had to pay an excess tax charge.
Currently dealing with a Hospital Consultant who is looking to take his pension a year early at age 59. Advised him to take the max lump sum & reduced pension. This will give him £54k pa plus £268k TFC.
1 - it is not effectively a charge on what is generated through wealth, as many Capital investments/gains are made heavily through finance/risk, and/or businesses / start-ups. Obviously everyone will have their own takes on this, but from my perspective I'm involved in a small growing business. I could earn a significantly higher salary elsewhere but instead focus on growing a business, including investing in employing people, and trying to pay good salaries. With the long-term outlook that the growth in the business including the potential capital gains (and once upon a time, favourable dividend rates) could potentially mitigate / offset the "lost" potential salary income.
With starting and growing business comes with significant risk and liabilities - very turbulent last 5 years for many businesses! Employee rights, maternity, economic turbulence, IT / property overheads etc etc. This scenario exists across many many sectors.
If the gains just end up aligning with income tax then it de-incentivises people from doing this, de-incentivises competition and overall economic activity. Easier, safer and less stressful to just take the safe option but to the detriment of economy.
2 - as you say in many cases capital gains are generated through wealth - but the example you refer to IS likely taxed at income rates already. If you have £1m in assets and generate £50k a year in returns, that's likely simple bank savings interest or maybe rental income. Both of which are income taxable.
But for a buoyant economy capital investment is essential so if you de-incentivise investment from those with wealth you are cutting off your nose to spite your face. Very simplistically but consider the Anchor and Hope pub in Charlton. A vacant derelict building now. It takes somebody with capital to invest to buy and develop this business if you want this to trade as a pub again (or even be put to a productive use of any kind - Antigallican is flats now I think?). Why would anybody bother doing this if the investment, and all of the risks around it, is just charged at the same tax rate they would pay from having it sat in a savings account at 5% interest as you suggest?
The difficulty though is for the average person who doesn’t employ an FA and maybe just puts a few hundred a month into an ISA or pension…… they are likely better in a tracker than trying to pick the right managed fund.