Business groups urge Chancellor to stop abolition of Capital Gains Tax taper relief

In an extraordinary show of unity, the UK's four main business groups have teamed up to write an open letter to the Chancellor, urging him to suspend proposals in his Pre-Budget Report 2007 to abolish Capital Gains Tax taper relief.

Alistair Darling's announcement in last week's pre-Budget report that he would abolish taper relief and introduce a flat-rate for Capital Gains Tax of 18% has been widely condemned by business. Feelings are running so high, the main business groups are taking collective action to try and persuade the Chancellor to reverse his decision.

The heads of the British Chambers of Commerce, CBI, Federation of Small Businesses and Institute of Directors say the policy reversal came "as a bolt out of the blue" and they have written collectively to Alistair Darling because "the reaction of their combined memberships has been so universally strong".

The letter says that the impact of the decision "will be felt throughout the economy" by "discouraging longer-term investment and risk-taking". It threatens to hit the investments of those who have built up a small business, hike the tax bills of the 1.7 million employees in share ownership schemes, and "discourage business angels and venture capital funds from investing for the long game".

The business groups plan to meet the Chancellor to understand why he made his surprise decision and work with him to resolve the situation.

The four organisations, who were already deeply concerned by the raising of small business corporation tax from 19% to 22% over the next three years (details in our Tax Rates section), now feel the government's ten-year effort to create a pro-enterprise agenda has been "put into reverse gear".

Here's he full text of the letter:

Dear Chancellor,

We are writing with regard to your decision in the Pre-Budget Report to end Capital Gains Tax taper relief.

The reaction of our memberships has been so universally strong that we have felt it necessary to write collectively to make clear the depth of our shared concerns.

Your announcement came as a bolt out of the blue. Despite the statement that this decision was driven by the need to simplify the tax system, none of our organisations has ever raised ending taper relief as a desirable step. Neither did the Treasury signal at any point that such a change was in prospect.

The impact of the decision will be felt throughout the economy. The net effect will be to set back the growth of the economy over coming years, by discouraging longer-term investment and risk-taking.

Owners of small enterprises, who have toiled over years to build up an asset, are now faced with selling up before April or facing a substantial dent to their investment. The 1.7 million ordinary employees who are in company share schemes could also face an 80% increase in their tax bill and a serious disincentive to taking up and retaining share options in the future. Business angels and venture capital funds say they too will be discouraged from taking risk and investing for the long game.

Many of those affected have already made investment decisions. The retroactive nature of this move has undermined their reasonable expectations.

Our members were already deeply concerned by the move in the last Budget to raise small business corporation tax over each of the next three years. Combined with this week’s decision on Capital Gains Tax they feel that the government’s ten-year effort to create a pro-enterprise agenda has been put into reverse gear.

On behalf of our combined memberships we urge you to pause, suspend your decision and enter into urgent and detailed discussion with the key business organisations to resolve this situation. We will work with you towards a better solution that meets the government’s objectives, however we do need to understand what those objectives are.We look forward to an early response and to identifying an alternative way forward that averts serious damage to this country’s entrepreneurial culture.

Yours sincerely,

David Frost, Director General, British Chambers of Commerce

Richard Lambert, Director-General, CBI

John Wright, National Chairman, Federation of Small Businesses

Miles Templeman, Director General, Institute of Directors