Capital Gains Tax change - an anti-enterprise measure

Following on from last week's Pre-Budget report announcement to scrap taper relief and create a flat 18% CGT regime, many companies and non-government bodies have condemned the move as being an anti-enterprise measure.

Early stage investment specialist E-Synergy branded changes to Capital Gains Tax rules a ‘blunt instrument’ that is inconsistent with the Government’s stated aim of creating an enterprise economy. This view is fairly typical of private companies who have commented on the CGT changes.

Andrew Stevenson, E-Synergy's chief executive, said the CGT change also threatens the UK’s ability to nurture and develop its fledgling sustainable technology sector:

“This change is a very blunt instrument that will hit enterprising small businesses and investors willing to take higher risks much harder than private equity bankers doing large, lower risk deals,” he said. “The rewards for those involved in start-up and early stage businesses are more capital gains based which puts them directly in the firing line."

“The companies themselves will have more trouble recruiting good managers – already in short supply – which in turn will make it even harder for them to secure the investment they need to commercialise their ideas. Those managing venture capital funds will also find it harder to attract good investment professionals because their carried interest will now be taxed at a higher rate despite already facing far higher risks than those involved at the later, private equity stage.”

Stevenson also said that the UK’s lead over the rest of Europe in securing investment for its fledgling technology companies is now under threat and attempts to close the gap to US levels of investment have been severely undermined.

“It is particularly bad news for the emerging industry sector of sustainable technology where the UK has the potential to lead the world,” he said. “That simply will not happen if enterprise and innovation in this exciting sector are strangled at birth.”

You can read more business reaction to the Pre-Budget report here.