Barrie Hensby column

Oct 31 2007 by Iain Laing, The Journal

TIME, they say, is a great healer. But as Groucho Marx once put it, “time wounds all heels” – and the heels of many thousands of UK entrepreneurs have just become somewhat more vulnerable to wounding ….

I’ve written before in these pages about the furore earlier in the year over the amount of tax executives in the private equity industry did or didn’t pay, and what should or shouldn’t be done about it.

These executives simply apply the measure in the current tax regime that are available to all of us, which results in them paying 10% Capital Gains Tax (CGT) on their earnings.

At the time, the Chancellor, Alistair Darling, promised that there would not be a ‘knee jerk reaction’ to the debate, and that he would take his time to consider the situation because the industry was such an important part of the UK economy.

Well, Mr Darling has taken the time he needed for the tension in his knee to dissipate and has come up with the solution of applying a flat rate 18% CGT to all, with no allowances to be able to reduce this.

Considering that the alternative tax regime that might have been applied was income tax instead of capital gains tax, which would have resulted in the people in question paying 40%+ tax, this sounds like a good result for the executives in the spotlight.

However, in taking aim at this small group of people, the Chancellor would appear to have caught a lot more of the business community in the cross-fire – namely, the thousands of entrepreneurs who have grafted for years to build value in their businesses, only to now find themselves paying 8% more tax.

But hold on – is it actually ‘cross-fire’ that these ordinary businesspeople find themselves caught it, or, as I think more likely, were they, rather than my industry, the intended target all along?

It turns out that the net tax effect of this change in the tax landscape is to raise a further £900m for the Treasury – so is it, in fact, a stealth tax coming in via a Trojan Horse?

Achieving commercial success is difficult enough without having those who should be on the entrepreneur’s side putting new obstacles in their way. We will all feel the effects of this continuous erosion of UK competitiveness and business environment – and some will pay with their jobs.

Barrie Hensby is chief executive of NEL Fund Managers Ltd.