Criticism for moves to close tax loopholes

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Indy Politics

The Chancellor drew criticism from both sides of industry by announcing moves to close tax loopholes and ensure that those working in private equity paid a fairer share.

Alistair Darling responded to criticism of private equity tax arrangements by telling MPs that the Government will withdraw the capital gains tax taper relief, which can be as low as 10%, and put in its place one rate of 18%, which he said was one of the most competitive single rates of any major economy.

Tax experts warned that the move, which will come into effect next April, could cause "serious damage" to companies as well as workers, while unions said the tax system would still be "unfair."

Bernard Sweet, director of corporate tax at Chiltern, said: "This will strike far beyond private equity. Many smaller companies, their staff and investors will suffer as this relief is withdrawn. This could backfire on the Government - it is a blow to hard-working entrepreneurs."

Paul Kenny, General Secretary of the GMB union, which has led criticism of private equity firms, said: "GMB welcome the fact that the Chancellor recognises that the tax loopholes for private equity need to be closed but the solutions that he proposes are far too little and are still unfair.

"The new rate of 18% still leaves the multi-millionaire elite paying a lower rate of tax on their income than ordinary working men and women. There is no justification for affording privileges to this elite and indeed proposing to continue to do so is scandalous. It is time that the few were treated like the many."

The GMB complained that the Government had not withdrawn the exemption from corporation tax of the interest payment on the debt used by private equity to buy companies like the AA.

"The AA has paid no corporation tax since 2004 despite its profit almost trebling and its business model relying totally on the publicly funded road network. This is grossly unfair and is leading to an unnecessary erosion of the corporation tax base," said Mr Kenny.

Paul Davies, UK Head of Tax for Ernst & Young, said, "The changes we saw today to taper relief are clearly motivated by the heightened focus on private equity. We are extremely disappointed with these proposals as they threaten to undermine the entrepreneur culture that has blossomed over the last decade.

"Complete abolition of the taper removes a large incentive for entrepreneurs and challenges the 'Dragon's Den' success of the UK. It also represents a fundamental retreat from his predecessor's key policy.

"The taper applies to many more areas than private equity and this will increase the tax paid by many employees of companies which offer other share incentives."