Liz Smith column

Oct 16 2007 by Iain Laing, The Journal

AFTER the Chancellor’s announced intention last week in his Pre-Budget Report to abolish capital gains tax taper relief, the CBI has united with the British Chambers of Commerce, Federation of Small Business and Institute of Directors to write to Alistair Darling urging him to suspend his proposals.

At first glance, the report looked like a mixed bag for business, with gains in some areas and losses in others. But what on the surface appears to have been a move to tackle a perceived problem of a few wealthy individuals in private equity, would have ramifications in all sectors of the business community, and in particular SMEs.

This week’s letter is one of a series the CBI has put to the Government since the PBR. Our members are concerned about the impact this decision would have in discouraging longer-term investment and risk-taking. It also raises questions about Government commitment to enterprise. Building an entrepreneurial culture requires the right incentives to balance the risk entrepreneurs take in setting up, and running, a business.

In addition to those small business owners who have expended a good deal of “sweat equity” – forgoing income and putting their homes on the line to build up their business – these changes will hit other investors, from external venture capital to employees who take a stake in their company’s future.

The PBR decision came on top of rises in corporation tax announced in the Budget earlier this year.

The then Chancellor changed the corporation tax regime for SMEs, making them at least £600m a year worse off by 2011.

At the time, we warned of the damage this would do to the role of entrepreneurs. Owners of small enterprises, who have worked to build up their business as an asset, are now faced with selling up before April or suffering a substantial dent in their investment.

We are urging the Government to suspend its plans and talk with business organisations to resolve this issue and work towards a better solution.

For the North-East, the proposals are particularly disappointing, as the region is working hard to develop an enterprise culture, but we need a tax regime that is supportive.

The removal of taper relief undermines confidence in the UK as a place to grow business. This could set back North-East plans for start-ups and expansions.

Liz Smith is assistant director of the CBI North-East.

For the North-East the proposals are disappointing