Enterprise Bill sends shivers through big business despite new tax breaks

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The Independent Online

Government proposals to extend the power of competition watchdogs and consumer groups provoked a fearful response from big business yesterday, taking the shine off the surprise announcement of tax breaks for hi-tech industry that had not been expected until next month's Budget.

The proposals were included in the Government's Enterprise Bill, the cornerstone of its ambitions to promote a competitive economy, and follow recent criticism of ministers' handling of Railtrack and mass redundancies at Consignia, formerly the Post Office.

Among the main elements of the legislation are measures to reduce the role of ministers in mergers decisions, remove the stigma of bankruptcy, combat cartels, and strengthen the Office of Fair Trading (OFT).

While welcoming the principles underlying the Bill, the employers' group the CBI raised doubts about encouraging the victims of anti-competitive behaviour to seek damages by having organisations such as the Consumers' Association make claims on their behalf. It also warned the OFT would have a "roaming brief" to investigate markets. That would undermine the watchdog's relationship with companies, which would be worried about the handling of commercially sensitive information.

Digby Jones, the CBI's director-general, said: "The Government could generate unnecessary and damaging trading investigations by giving yet more powers to the OFT and consumer organisations. Nobody will benefit from forcing good firms to defend themselves unnecessarily when their European rivals will shelter under less rigorous regimes."

There were also proposals to restrict the use of administrative receivership for troubled firms in favour of administration, while clamping down on reckless bankrupts. The Crown's priority over other creditors is also to be abolished.

Small business groups were contented. The British Chambers of Commerce called for the OFT to be strengthened further, and applauded the new bankruptcy regime for "stripping away obscure Victorian rules".

Publication of the Bill came as the Chancellor of the Exchequer, Gordon Brown, delighted businesses with a range of tax breaks mainly benefiting hi-tech companies. The Treasury said the unprecedented early release of material slated for the Budget would help businesses with their planning.

The measures, which come into effect on 1 April, will make corporate restructuring easier and promote research and development. Profits on the disposal of stakes of 10 per cent or more in trading companies are to be tax-exempt, saving companies £150m annually. Goodwill will also receive favourable tax treatment, estimated to be worth up to £350m.

Details of a new tax credit for research and development in larger companies were being kept under wraps until the Budget. The CBI qualified its delight at the measures by urging the Chancellor to introduce a credit that would reduce R&D costs by at least 10 per cent.

The Treasury said a release from the Inland Revenue putting the tax credit at 20 per cent – equivalent to £600m annually – was a draft sent in error.

Adam Frais, a tax partner at BDO Stoy Hayward, said: "The difficulty that the Chancellor has is preventing the legislation becoming complicated without merely offering a windfall to big businesses that spend a large amount on R&D in their normal course of business."

Bill Morris, the General Secretary of the Transport and General Workers' Union, said the moves were a "welcome first step" but ought not to be the last word on the Government's support for manufacturing.