Politicians have never very well understood the law of unintended consequences. You have only to look at recent government U-turns over home information packs and alternatively secured pensions to see that ministers never really think through how changes in policy are likely to affect behaviour. And so it is again with this year’s rushed PreBudget Report.

In an act of shallow appeasement of the unions, Alistair Darling decided to crack down on the so-called fat cats of private equity. But by using the unwieldy sledgehammer of capital gains tax (CGT) reform to crack this particular nut, the Chancellor has created a rather unexpected cast of winners and losers and unleashed distortions that could hit the housing and stock markets.

Mr Darling’s radical reform of CGT may well force a small number of private equity bosses to pay 80 per cent more tax from next year (an increase from 10 per cent to 18 per cent), but it will also hit thousands of entrepreneurs when they sell their small businesses – in many cases to fund retirement. Inevitably, diminishing the rewards for endeavour will reduce enterprise. But it is not only entreprenuers who will suffer. Diligent private investors who are basic-rate taxpayers and employees in sharesave schemes will also be punished for their thrift as the tax rates on their profits will increase. Meanwhile, wealthy private investors and some buy-to-let landlords and people with second homes are set for a bonanza as the tax rate on their profits will fall from a maximum of 40 per cent to only 18 per cent.

As the rules do not come into force until April, it is likely that some people who own second homes will now delay any decision to sell, causing temporary distortions to the housing market. Ultimately, this policy may also encourage investment in buy-to-let property and second homes, which could support prices and make it ever harder for young and local people to afford a first property. Similarly, abolishing taper relief – a policy, it is worth remembering, that Gordon Brown introduced to promote long-term investment – may encourage trading on the main stock market, but it is likely to dampen demand on the secondary Alternative Investment Market.

When the Chancellor was hastily penning his PreBudget Report in an attempt to outflank the Tories, did he realise that he would be discouraging enterprise and cutting the profits of less-well-off savers to redistribute to wealthy investors and those who own a second home? Did he realise that he would be encouraging stock market short-termism and making life harder for first-time buyers? Maybe he did. Maybe he thought that these were desirable outcomes or that any ill-effects were a price worth paying for tax simplification. But on past form, it is more likely that the Government simply did not comprehend the full consequences. It merely saw an opportunity for a popular assault on private equity bosses and the chance to raise about £900 million in extra taxes.

While the beneficaries of the changes can celebrate, they should not expect the largesse to last. It cannot be long before ministers decide that these reforms have created another so-called loophole and choose to raise CGT or even impose a spurious new tax on the profits from selling a second home.

A little social engineering through inheritance tax reform

The Chancellor may have stolen the Tories’ thunder by announcing the biggest reform of inhertiance tax (IHT) in more than 20 years, but few of the beneficiaries are likely to complain.

The decision to allow married couples and civil partners to transfer their IHT allowances to each other upon death – though less generous and less straightforward than the Conservative Party’s plan to increase the threshold to £1 million – is a welcome step. Moderately wealthy families should now be able to pass on most of their estate tax-free.

It is true that many prudent couples already make use of their combined allowances through discretionary trusts and, sadly, these people will not benefit from the changes. But many more couples are less organised or die before they have the opportunity to put such plans in place. These people will now be able to bequeath much more without the taxman taking a slice. Critics of the proposals cannot have it both ways – if no one benefits, then why are the changes going to cost the Treasury an extra £1 billion a year, rising to £1.4 billion in 2010?

A more legitimate criticism of the Chancellor’s proposals is that they unfairly penalise divorcees, siblings who live together and people who die alone. Labour, it appears, is now using death duties as a tool for social engineering by creating a powerful financial incentive for couples to stay together or marry in the first place. This may be deliberate, but it is more likely that the Government chose this system simply because it costs less.

Alistair Darling also announced that the IHT threshold would increase in line with house prices in future. But what if property values fall, as well they may? Does this mean that the IHT threshold would decrease? I wouldn’t put it past him.