Britain's most influential business groups have come together to mount a rare unified attack on the Chancellor Alistair Darling's proposal to abolish capital gains tax relief.
The leaders of the British Chambers of Commerce, the CBI, the Federation of Small Business, and the Institute of Directors sent a joint letter to Mr Darling in response to his introduction last week of a new flat capital gains tax rate of 18 per cent to replace the current tax regime that gives breaks to entrepreneurs. The proposal, unveiled in the pre-Budget report, incensed many in the business community.
In their letter, the four lobby groups accuse the Chancellor of throwing the Government's enterprise agenda "into reverse gear". They said: "The impact of the decision will be felt throughout the economy. The net effect will be to set back the growth of theeconomy over coming years, by discouraging longer-term investment and risk-taking."
The Chancellor's move was designed to close a loophole that was used extensively by private equityexecutives, who have been able to pay only 10 per cent on multimillion-pound returns they achieve when they sell portfolio companies. The so-called "taper relief" allows investors to pay only 10 per cent capital gains, instead of the typical 40 per cent, on investments in private companies held for more than two years. Gordon Brown introduced the rule a decade ago to foment entrepreneurialism. Critics said the buyout industry was unfairly benefiting from rules not meant for it.
The joint letter said its elimination will have the unintended consequence of stifling innovation in the rest of the economy. It said: "On behalf of our combined memberships, we urge you topause, 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 tounderstand what those objectives are."Reuse content