The Chancellor’s pre-Budget report has met with a storm of protest from institutional investors and business groups. The criticism centres on the planned withdrawal of business asset taper relief and the introduction of a flat rate of 18 per cent for capital gains tax.
The Chancellor’s pre-Budget report has met with a storm of protest from institutional investors and business groups. The criticism centres on the planned withdrawal of business asset taper relief and the introduction of a flat rate of 18 per cent for capital gains tax.
Simon Walker, chief executive designate of the British Private Equity and Venture Capital Association, believes the changes sit ill with the Chancellor’s emphasis on UK innovation and global competitiveness.
He says: ‘This will hit not just private equity but thousands of venture capitalists, family businesses and small and medium-sized companies. A rate of 18 per cent means capital gains tax is higher in Britain than France (16 per cent), Italy (12.5 per cent) and the US (15 per cent).’
Gary Robins, CEO of investor syndicate Hotbed, says the changes to taper relief will be particularly damaging for unlisted growth businesses: ‘Darling has effectively removed the tax advantages available to investors who back unlisted companies.
‘Doing away with taper relief means there is no longer any reason for investors to hold unquoted shares for a longer period. It will have the undesirable effect of encouraging short-termist investing.’
He adds: ‘We could see more companies going bust if they can’t get money from private investors or from banks to resolve cash flow problems. Entrepreneurs seeking growth funding could also find that they have fewer backers.’
Groups representing smaller business were also angered by the Chancellor’s failure to reduce their corporation tax burden, while cutting the higher rate by 2p to 28p in the pound. The base rate remains at 22 per cent after Gordon Brown increased it from 19 per cent in his final budget as Chancellor.
Matt Hardman, campaigns manager at the Forum for Private Business, says: ‘How much does big business have to be handed before smaller firms are given a slice of the pie?’
However, the pre-Budget report won qualified praise from Will Hutton, chief executive of the Work Foundation, who comments: ‘The move on capital gains tax – squarely targeted at the private equity industry – is very welcome. The public needs to see private equity, good in parts as it may be, pay its fair share.’
To read the views of entrepreneurs and investors on the proposed changes to capital gains tax, click here.
