No sign of tapering out

Alistair Darling shows no sign of succumbing to the pressure from business groups, entrepreneurs and even trade unions to reverse his controversial decision to scrap taper relief on capital gains tax. But that’s apparently not going to stop people trying.

Last Updated: 31 Aug 2010

MT was in London on Thursday for an event organised by entrepreneur network The Supper Club, designed to put business owners in a room with tax experts and politicians to debate the issues involved. We were looking forward to hearing the government defend its position, in the spirit of democratic consultation – but naturally, they declined several invitations to attend.

Predictably, the entrepreneurs at the event (including youthful Glasses Direct founder Jamie Murray-Wells) argued forcibly against the changes – and not just for the effect on their eventual pay-day. Employee share schemes would also be affected, while it could also make angels less likely to plough money into start-ups, some suggested.

‘It’s a bad mistake, which will damage Britain’s culture of enterprise,’ agreed Tory MP David Gauke, promising that his party would exert ‘maximum pressure’ on the Chancellor to change his mind and vote against it if it makes the Finance Bill (though he stopped short of promising to reverse the decision if they ever come to power). He also encouraged those in attendance to lobby wavering Labour backbenchers.

The Tories reckon Britain’s enterprise culture is already in decline. According to a study they’ve commissioned from the ESCP-EAP European School of Management, the proportion of successful small businesses has actually fallen since Labour came to power. In 1997, 48% of new business had a turnover greater than £1m after five years – by last year this had fallen to just 16%. Sure, the number of small businesses has grown, but only because the population has too – the report reckons the number of start-ups per capita has actually fallen since 1997.

It also suggests the UK is lagging behind the continent in developing successful businesses. Only 7% of new companies are turning over more than £7m after five years, compared to 16% of businesses in Europe (and that’s with taper relief). This is bad news, because it’s these high-growth companies that create the most jobs. The business school thinks the blame lies partly with Britain’s enterprise culture (or lack of it) and partly with the government for distorting the venture capital market, increasing taxation and burdening firms with extra regulation.

MT left the meeting convinced of two things. One, the opposition to this tax hike among entrepreneurs is fairly unanimous (The Supper Club’s petition on the No.10 website now has 12,000 signatories, according to founder Duncan Cheadle).

And two, the biggest winners of this whole debate will be the Tories. Even if Alistair Darling can’t be persuaded to change his mind, it seems unlikely that budding entrepreneurs will just decide against it, or decamp en masse to Monaco. But we can’t see many of them voting for Gordon Brown at the next election.

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