With the government’s announcement of the ending of Capital Gains Tax Taper Relief, Exec gauges whether the measure will hit its target - will it bring British entrepreneurship down with it?
To say that the announcement by the Chancellor, Alistair Darling, of the government’s intention to abolish taper relief for Capital Gains Tax (CGT) and replace it with a flat rate of 18 per cent came as a surprise would be something of an understatement.
By Ruari McCallion
“The Treasury Select Committee was scheduled to come out with its assessment [of the role and impact of CGT and taper relief] and we were anticipating seeing that assessment ahead of any changes,” said Andrew Dodgson, spokesperson for Unite – The Union. It has been at the forefront of a campaign to highlight perceived abuses of the CGT regime by private equity, in particular. Its complaints have centred on some high-profile examples of asset stripping, redundancies and the practice of “loading companies up with debt”, all of which he describes as the way private equity operates. Not that it’s all bad.
“In some areas, private equity has had a contribution to make – for example, at LDV and Aston Martin. There are a handful of examples where there have been benefits but the balance is more bad than good. We asked for two reports to look at investment returns and employee returns and they found that, at best, private equity has had a neutral effect. The claims made for it don’t stand up to scrutiny.”
No apology for focusing on private equity, because there is a general perception or belief that the private equity funds were the intended target of the proposed reforms. A situation where wealthy investors were paying lower tax rates than their office cleaners is a sensitive, especially to a government that’s undergoing a series of PR crises.
There simply aren’t enough good days to bury the flood of bad news and a move against ‘fat cats’ and their ‘tax privileges’ could have been seen as something to be generally welcomed and if the target complains bitterly, so much the better. But the private equity spokespeople have been pretty quiet. Simon Walker, Chief Executive Designate of the BVCA (British Private Equity & Venture Capital Association) was quite restrained in his reaction.
"The Chancellor has placed emphasis on innovation, enterprise and the need to maintain the UK's competitive position,” he said. “This move will hit not just private equity but thousands of venture capitalists, family businesses and small and medium-sized companies. A rate of 18 percent means capital gains tax is higher in Britain than France (16 percent), Italy (12.5 percent) or the US (15 percent) - let alone countries like Switzerland which have no CGT.”
SMEs
That can’t really be classified as a howl of outrage. The cries of pain are coming from small businesses and representatives of SMEs. It’s they who maintain that this measure is throwing the baby out with the bathwater – and the bath as well.
“Not only has the Government used the whole tool shed (as opposed to just the sledgehammer) to crack a nut, they have missed the nut entirely because the private equity industry is not unhappy with the change,” said Matthew Knowles, of the Federation of Small Businesses (FSB). “We actually warned against this earlier in the year but this went unheeded.” The FSB has described the changes as ‘catastrophic’ for the section of business it represents.
“We are not talking about millionaires or fat cats...
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