Enterprise groups have set aside their rivalries to protest against Alistair Darling’s unprecedented decision to raise the tax on selling a company by 80 per cent.
In a rare united front, the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses have called on the chancellor to rethink the tax hike.
Disclosures obtained by the Sunday Times claim that the trio, joined by the British Chambers of Commerce, want Mr Darling to suspend the abolition of taper relief he unveiled in the PBR.
The groups say their members face higher tax bills running into tens of thousands of pounds when they sell their businesses, typically before retirement or to launch a new venture.
In his fist big statement as chancellor, Darling claimed he simplified the capital gains tax regime by abolishing taper reliefs, indexation allowance and rebasing provisions.
To replace the relief, which allowed entrepreneurs to sell their businesses and pay just 10%, any gains from April next year will be taxed at 18%, for both higher and basic rate taxpayers.
Business groups realise the shake-up to capital gains tax was designed to hit super-rich investors, but many, including those outside of business, say the response is heavy-handed.
Writing on his blog, David Smith, economics editor for the Sunday Times, said firms are justifiably “up in arms” as Darling is wielding a “sledgehammer to crack the private equity nut.”
In an open letter to the chancellor, the CBI’s director-general Richard Lambert acknowledge the government was acting clumsily if the rich were really the target.
“By removing taper relief you have deployed an extremely blunt instrument that will deeply damage a much wider community [than private equity alone], and in so doing, risk the medium-term health of our economy,” he wrote.
Although the group believes the measures help simplify the CGT regime, it comes at “the cost of hitting a number of groups who are taking significant risks in investing and building the business that generate so much of our…wealth.”
“In addition to those small business owners who have expended a good deal of ‘sweat equity’ - foregoing income and putting their homes on the line in order to build up their business,” Mr Lambert wrote in his letter, published on Thursday.
David Frost, director-general of the BCC, believes smaller companies with profits under £300,000 will feel the pinch the most.
“The changes to taper relief are a savage blow to entrepreneurs whilst the damaging rise in the small companies tax rise has not been reversed,” he said.
“Businesses will feel that the government has done nothing to stimulate SME business growth”.
The FSB is urging anyone affected by the increase in CGT to make their feelings known by joining a petition posted on the website of 10 Downing Street.
In a statement, it said: “This is yet another hammer blow to small businesses still reeling from the increase in their corporation tax bills announced in the last Budget.
“The Federation of Small Businesses has been lobbying hard to get this outrageous decision reversed and is looking for your help.
“There is already a petition on the Number 10 website and the FSB is keen to get as many signatures as possible. Please support the campaign .
Estimates suggest the new single rate of CGT will earn the Treasury £900m, which has reportedly been factored in to fiscal projections, casting doubt on a reversal to 10%.
One of its senior officials said: “When people have settled down, they’ll see it is still a very competitive rate.”
Oct 15, 2007
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