Darling faces further capital gains tax pressure

Monday, 15 October 2007 12:00 AM

Business leaders have united to pressure chancellor Alistair Darling to perform a volte-face on changes to capital gains tax (CGT).

The heads of the British Chambers of Commerce, the CBI, the Federation of Small Businesses and Institute of Directors have come together to pressure the chancellor of the exchequer not to go ahead with the abolition of taper relief for capital gains tax.

A joint letter from the directors general of the four organisations states: "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."

The taper relief allows those who work for a firm they have an investment in to pay CGT at a reduced rate of ten per cent when they sell an asset.

The joint statement from the organisations says owners of small enterprises 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 per cent increase in their tax bill and a serious disincentive to taking up and retaining share options in the future," the joint letter explained.

"Business angels and venture capital funds say they too will be discouraged from taking risk and investing for the long game."

The government claims the flat 18 per cent CGT rate is fairer.

Chief secretary to the Treasury Andy Burnham told BBC Radio 5 Live's Wake Up To Money: "We believe 18 pence in the pound is a fair rate for all.

"Alistair has made his decision clear in the pre-Budget report."

Commenting on the letter, Alan Duncan, shadow secretary of state for business, said: "The fact that all the main business organisations have combined to oppose the government's changes to CGT show what a total mess the government has created.

"Taper relief was one of the few good things that this government had done for business, but they have now dismantled this policy. Just when a changing economy needs more entrepreneurs the government's decision amounts to an illogical attack on enterprise."

The lower rate was originally introduced in the 1998 Budget by Gordon Brown in a bid "to help investment by encouraging the longer term holding of assets" and "stimulate entrepreneurial activity by rewarding longer-term investment by owners and significant investors in businesses".

Last week the CBI and the GMB union both sent letters to the chancellor of the exchequer urging him not to go ahead with the CGT changes.

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• business and industry
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• economy
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• taxation