I do pick some great times to go on holiday. Over the past few weeks, the euro area came dangerously close to imploding, only to be rescued by a deal of truly mind-boggling proportions, only to then find that the market still isn't minded to trust that European politicians know what they're doing, thank you very much. The fact that now even Italy – really, the elephant in the room while Greece and others have taken centre stage – has now announced austerity measures shows you just how bad things have got.

At home, meanwhile, the new and interesting coalition government is starting to flex its muscles. Like others, I had hoped that the marriage of convenience – which it definitely is, despite the highly engaging and enjoyable Dave and Nick show in the gardens of Number 10 the morning after – would isolate the loonies on the fringes of both parties. But it appears that the Tories, in particular, have not forgotten how to be bloody awkward.

The row over capital gains tax (CGT) is an interesting one, and strikes to the heart of the new government's dilemma. Clearly, the deficit has to be culled. And, with that in mind, every penny that can be found is being snaffled up, even if at its peak CGT only yielded 0.5% of GDP. But, at the same time, with the deficit falling the government needs to do everything it can to persuade the private sector to take up the baton of growth – hence the very sensible proposed exemption for business assets, which the private equity industry is desperately hoping will apply to it. Instead, the CGT rise would mainly hit households – bad for incentives and those hard-working pensioners, say ex-luminaries such as David Davis and the irrepressible (many have tried) John Redwood. (These are, of course, the same sorts of people who said the financial and economic world would turn its back on the UK if we had a hung parliament – still waiting on that one.)


The thing is, only rich people pay CGT. To start with, you need to own assets – which a disturbing number of low-income earners simply do not have money for. It is worth bearing in mind that the politicians arguing against this are very wealthy individuals, enjoying gross incomes well above the UK national average of £25,800 in 2009 (enough to buy 0.09 houses in London). Some economists fervently believe that capital gains should be taxed in the exactly the same way as income to preserve a progressive taxation structure. And, to be honest, an extra disincentive to save wouldn't be all that bad at all at the moment, if it meant people were a little freer with their money in the high street. With GDP growth in Q1 struggling to match the sub-trend 0.4% reading in Q4 of last year, the BoE's growth forecast – revised down again in the May IR – still looks on the chancy side. Make no mistake, we are still crawling, not bouncing, out of recession.

One of the coalition's other economic ideas is the Office for Budget Responsibility, headed up by the venerable Sir Alan Budd. I have met Sir Alan (the other chap is now called Lord Sugar, don't you know) a few times, and I think he will be a good choice to lead the small unit. Furthermore, the limited responsibilities of the OBR – essentially forecasting GDP growth and the fiscal position, given what the government plans to spend – are not that daft at all. It remains to be seen, of course, how it works in practice, with Alan and two other old hands driving the process (I for one was very sad not to get an invite), and it is not a 'big idea' in the same league of the independent MPC. But, so far at least, the coalition seems to have some good policies, and is working hard not to come apart at the seams. Long may that continue.

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