It is like using a howitzer to hunt a rabbit – and then missing. Alistair Darling, the chancellor of the exchequer, has announced a complete restructuring of the UK’s capital gains tax – the biggest change to taxation since the late 1990s – so that private equity partners no longer pay at unusually low rates. But not only does the change miss its target, it will have big effects across the economy, which the Treasury ought to consider.

From April next year individuals will face a flat capital gains tax rate of 18 per cent. That means three key changes. First, there will no longer be a lower rate for the sale of a business rather than other assets such as property. Second, there will no longer be extra relief for assets held long term. Third, and most important, capital gains will no longer be taxed at the same rate as an individual’s other income.