Capital gains tax change will 'damage enterprise culture'

More evidence has emerged of the potential damage the Chancellor's capital gains tax changes could have on UK enterprise and investment. In the Pre-Budget Report, Alistair Darling abolished CGT taper relief in favour of a flat 18% rate on business sales. Understandably, business owners and all the key business organisations in the UK have condemned the change as an anti-enterprise measure.

The Gfk NOP survey for the CBI, which polled 500 sme owners across all industry sectors, found that 40% of those polled said that the changes had a negative impact on their businesses. This sentiment sharpened to 57% among those who have held equity in the business for more than ten years. Of all the business leaders surveyed, 61% held equity in the firm.

All three key elements of the CGT shake-up – the abolition of taper relief, the change in the marginal rate, and the abolition of indexation relief – were seen as important factors, especially among those with an equity stake. But there was a spike of strong concern around taper relief, with 85% of those who said CGT changes were “very negative” citing taper relief as “highly important”.

The CGT changes were not regarded as a move that cut tax red tape, with 63% of respondents saying the proposals were not a "desirable simplification". Instead the proposals are already hitting future business plans: 43% have altered their plans for investment in new business, while 36% have changed their minds on investing in existing business. Over four in ten (42%) equity holders said they will become less entrepreneurial because of the CGT changes. The youngest and smallest businesses were particularly prone to investment cutbacks.

70% of all respondents said the CGT changes had undermined the government's approach to enterprise, and 72% believed that the government’s commitment to enterprise was in doubt. Two thirds of firms (66%) doubted that the government is fully committed to encouraging enterprise, with 31% of those firms strongly disagreeing, while an overwhelming 93% thinks the Government needs to do more to restore its commitment to an enterprise culture.

John Cridland, CBI Deputy Director-General, said: "The government's standing with business has been sorely undermined by the proposed capital gains tax changes, and there is a lot of damage to be repaired.

"Entrepreneurs are now less inclined to do what they do best: taking risks, investing in ideas and driving the economy forward."

"These changes are trampling on the spirit of enterprise and discouraging entrepreneurs from investing in their businesses. The market is also being distorted as firms rush through plans for sale."

"The Chancellor needs to recognise the consequences of these ill-conceived proposals and must find alternatives to the capital gains tax changes as a matter of urgency."