The campaign to save taper relief

Talk about opening a can of worms. Alastair Darling’s move to abolish taper relief on capital gains tax - supposedly to penalise private equity bigwigs - has united the UK’s business community in outrage. But will it be enough to force the Treasury into an embarrassing U-turn?

Last Updated: 31 Aug 2010

On Monday the four leading pro-business groups – the British Chambers of Commerce, Confederation of British Industry, Institute of Directors and the Federation of Small Businesses – sent a joint letter to the Chancellor, demanding a meeting to discuss their concerns. The ‘universally strong’ reaction of their members to the changes had compelled them to join forces, they said.

This ‘bolt out of the blue’ would curb economic growth ‘by discouraging longer-term investment and risk-taking’, they suggested. Coupled with last year’s decision to raise small business corporation tax over each of the next three years, such a move would mean that ‘the government’s ten-year effort to create a pro-enterprise agenda has been put into reverse gear’ (the IoD actually thinks taper relief should be expanded, not abolished).

Entrepreneurs have also been quick to voice their opposition – and as you’d expect from some of the country’s savviest self-publicists, the campaign is not leaving a single multimedia stone unturned. In addition to the standard radio and TV, there have also been online petitions, Facebook groups, podcasts and vodcasts… The Chancellor can expect to be bombarded from all angles.

Their motives are obvious. Business owners are about to see their prospective tax bills double if Darling’s new laws reach the statute books. They are also being robbed of any incentive to build their companies over an extended period, since the new CGT rate will apply regardless of how long they’ve held their assets. Not exactly the ideal way for a supposedly pro-enterprise government to encourage long-term wealth creation.

In fact, Darling doesn't seem to have pleased anyone. Even the trade unions that lobbied so hard for a crackdown on private equity have criticised the proposal, with the GMB calling it 'a disaster for new businesses'.

The Treasury is insisting that simplification is good, and that the UK’s CGT regime remains extremely attractive. And it’s true that CGT remains lower than it was when Gordon Brown became Chancellor. But that’s not the point – once you’ve given someone a tax break, taking it away again is just asking for trouble.

Can the government really afford to plough on with a policy that is almost guaranteed to alienate or aggravate every business owner in the UK?

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