Abandon tax changeplea to Chancellor
THE UK’s four main business groups have today united to urge Chancellor Alistair Darling to suspend his changes to capital gains tax.
The British Chambers of Commerce, the Confederation of British Industry (CBI), the Federation of Small Businesses and the Institute of Directors have collectively written an open letter to the Chancellor asking him to rethink the surprise proposals unveiled in the pre-budget report last week.
The North East Chamber of Commerce says thousands of entrepreneurs and small firms in the region are facing an 80% tax hike thanks to the Chancellor’s efforts to close a loophole on private equity.
And it added the move would cause “serious harm” to small business growth in the region.
Mr Darling’s proposed changes will withdraw the capital gains tax taper relief, which can be as low as 10%, and put in its place a flat rate of 18% from April next year.
The taper was introduced by Gordon Brown in 1998 in an attempt to encourage enterprise in the UK. The recent moves are seen as an attempt to rein in earnings at private equity firms, although experts argue that it is mainly small businesses that will end up paying the cost.
The business groups’ letter slams the decision, saying it ‘‘will be felt throughout the economy’’, slowing down growth by ‘‘discouraging longer-term investment and risk-taking’’.
It adds the change threatens to hit the investments of those who have built up small business, hikes the tax bill of 1.7 million employees in share ownership schemes and ‘‘discourages business angels and venture capitalists from investing for the long game’’.
Andrew Sugden, NECC director of membership and policy, said: “The change to capital gains tax taper relief will have implications far beyond the world of private equity.
“Thousands of entrepreneurs in the North-east who have built up small businesses over many years will now face an effective 80% tax rise on the money they will receive by selling a stake in their companies.
“This will have a serious impact on motivation for small businesses, which the North-east needs to play a significant role in driving economic growth. It will also deter owners from selling a stake in their business, even when this can bring in much needed finance to stimulate growth.”
The organisations plan to meet with the chancellor to try to understand why he made his decision and work to resolve the situation.
The business groups, who are already ‘‘deeply concerned’’ by the raising of small business corporation tax over the next three years, said they feel the Government’s ten-year effort to promote enterprise in the UK has now been ‘‘put into reverse gear’’.
The plans have led to fears that many small business owners will rush to sell their firms before the changes are due to take place next year, with City advisers claiming they have seen a jump in requests from firms looking to sell their businesses since the pre-budget report.
Mr Sugden added: “These reforms come at a particularly unhelpful time for the North-east economy, which has enjoyed unprecedented growth in recent years. The impact of these tax increases only serves to seriously reduce the incentives for enterprise and puts both existing growth levels and the intended surge in new start-ups at risk.”
