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CGT rise is ominous sign for enterprise

The government‘s decision to raise the amount of tax owing when company-owners sell-up will have a long-lasting erosive effect on its relations with small business.

In an outgoing interview as chairman of the small & mid-sized enterprise council for the CBI, Steve Sharratt said the unprecedented rise to capital gains tax has sparked revolt.

Speaking to the Daily Telegraph, he said company owners are now not willing to “get back around the table” with state officials to discuss the enterprise agenda.

Such a withdrawal of support as a response to the CGT changes was “across the board”, he said, and even applied to entrepreneurs on the government’s own business forum.

Reflecting on the fallout from the tax change, which takes effect from April, Mr Sharratt explained: “It’s like a cheating spouse. You don’t repair the damage overnight.

“When I took office, businesses on the whole said we can move forward. Now we have the credit crunch, capital gains tax, increases in taxes, and a government that no longer seems to value enterprise.”

And though Mr Sharratt warned that the final draft on capital gains tax, due this month , could prove particularly damaging, the CBI is bracing firms for more general turbulence.

He said he is “not optimistic” about a new enterprise strategy to be presented by ministers in March, and last week the group predicted a “difficult” economic year ahead.

In economic terms, the most likely outcome is a “soft landing,” despite ongoing fears about the combined impact of rising commodity prices and the continuing credit crunch.

But speaking after its New Year message, the employers’ organisations hinted that those firms potentially affected by the CGT change and recent hike to SCR, would be among the most vulnerable .

“Small and medium-sized enterprises are facing a pretty torrid time, so 2008 is not going to be one of the best years for these firms,” Mr Sharratt said.

Despite the apprehension, some small firms remain optimistic: a poll of 723 small and mid-sized firms reveals one-third are upbeat about 2008, while almost half expect similar trading conditions to 2007.

Only one in six of the companies polled by Alliance and Leicester in December said they expect an adverse economic impact on their business in 2008, yet all the firms were advised to keep their finances under close management in the coming months.

Jan 7, 2008
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