'Trust' call to Tories in row on tax rise

The Work and Pensions Secretary insisted Chancellor George Osborne was determined to "take the sting out of" the row over mooted increases in the rate.

The intervention came as a senior Liberal Democrat warned that the coalition could "unravel" over such issues.

The agreement hammered out between the parties in the wake of the General Election said CGT would rise from 18 per cent to "similar or close" to the levels applied to income – 40 per cent or 50 per cent for higher earners.

But there has been growing opposition to the idea on the Tory Right.

The Government seemed to back away from the proposals slightly in last week's Queen's Speech, with briefing notes merely suggesting CGT rates could move "closer to those applied to income tax".

Mr Duncan Smith stressed no decisions had been taken.

"The Chancellor has been clear that he is listening to everything and he will make the final decisions.

"He has also talked about major exemptions for all kinds of different groups. We don't want to harm entrepreneurs, we don't want to harm families heading towards retirement and have actually saved and planned for that."

But he said people "had to be honest" about the political reality and need to tackle the deficit. "There is no way of doing this without changing the tax system and CGT at 18 per cent has led to a lot of tax avoidance because it is different from the level at which people pay their income."

Mr Duncan Smith went on: "The reality is the easiest thing in the world would be for us to slash all the taxes, but you still have to find short term money.

"He (Mr Osborne) is definitely looking for ways in which we can take the sting out of this."

Lib Dem Energy Secretary Chris Huhne warned against trying to change parts of the carefully crafted deal that underpins the Government.

He said he did not see in opponents of the rise an awareness of the constraints and competing priorities the Government was facing .

"It is terribly easy to run a single-issue campaign saying we don't like this, but that doesn't take account of the world of Government."