Capital Gains Tax move “Undermines Enterprise”

Small Business News – 11th October 2007

Hot on the heels of the Chancellor’s first Pre-Budget Report comes a response from the Confederation of British Industry (CBI).

This morning (Thursday) CBI Director-General Richard Lambert sent an open letter to Alistair Darling, Chancellor of the Exchequor, expressing the business group’s deep concerns over changes to Capital Gains Ta/business-advice/finance-and-money/budget-2013-annual-tax-rates-and-allowances/capital-gains-tax.htmlx as announced in the PBR.

The letter chiefly states that the change in Capital Gains Tax…

"undermines the 10 year effort by this government to promote enterprise and risk-taking within the UK."

Undersigned by a number of members of the CBI including Steve Sharratt, Chairman of the CBI’s SME (Small & Medium Sized Enterprises) Council and another 12 SME Council memebers, who run their own small businesses, the letter continues:

"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."

The letter in its entirety is repeated below:

Dear Chancellor,

The CBI believes that your Pre-Budget Statement yesterday undermines the 10 year effort by this government to promote enterprise and risk-taking within the UK. In so doing, it cuts across your launch, only a few weeks ago, of the consultation on a new Enterprise Strategy.

In the Spring Budget, the then Chancellor changed the corporation tax regime for SMEs, making them at least £600million a year worse off by 2011. At the time we warned of the damage that this would do to the role of entrepreneurs in our economy.

In advance of your first Budget, the CBI called for a signal that you recognised the valuable contribution of entrepreneurs to the health of the British economy, and the need to encourage small & medium size businesses to invest. What we got, in yesterday’s Pre-Budget Report, will, we fear, hold back much-needed investment.

The abolition of taper relief provides for some simplification of the CGT regime, but at the cost of hitting a number of groups who are taking significant risks in investing in and building the businesses that generate so much of our employment and 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 – these changes will hit other investors, from external venture capital to employees who take a stake in their company’s future.

Such a move was clearly designed to tackle a perceived problem relating to a few wealthy individuals operating in private equity. However, it is by no means clear that the regime of capital taxes that this government previously agreed should apply to the sector was inappropriate for their level of risk-taking. By removing taper relief you have deployed an extremely blunt instrument that will deeply damage a much wider community, and in so doing, risk the medium-term health of our economy.

For the corporate sector more broadly, the PBR represented a further increase in the overall business tax burden of £900 million. This at a time when many businesses are already considering the international location of their future investment, and the government’s own forecasts point to a more uncertain economic climate.

In a globalising world, the domestic business climate is ever more important in attracting capital and talent to invest in the UK. We call on you to take urgent action to get the Enterprise Agenda back on track.

Yours sincerely,

Richard Lambert, Director-General, CBI

Steve Sharratt, Chairman, CBI SME Council

Members of the CBI SME Council:

Moneeb Awan, Esay Solutions
Nick Harrison, Westleigh Investments
Anne Duncan, Yellowfin Ltd
Hugh Morgan-Williams, Canford Group
Anthony Fretwell-Dowling, FDH Group Ltd
Hamish Grant, Axeon Holdings plc
Russel Griggs, IMES Group
Rufus Harding, George & Harding Ltd
Malachy McReynolds, Elizabeth Shaw Ltd
Jonathan Quaile, Alliance Insurance Management Ltd
Peter Wall, WG Eaton Ltd
Jane Wittering, MJCA Ltd

11 October, 2007

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