Pre-Budget backlash
Article Date: Nov 07 2007Following Chancellor Alistair Darling's first pre-Budget report to Parliament, we asked private equity players and entrepreneurs for their reaction to the abolition of taper relief and a new capital gains tax rate of 18 per cent.
These are their verdicts.
Luke Johnson
Founder, Risk Capital Partners
Removing taper relief is a misguided move that will discourage risk-takers and damage job-creation. The Government has allowed the specific issues concerning one tiny group – private equity executives – to distort legislation against entrepreneurs. One of [Prime Minister] Gordon Brown‘s finest hours [as Chancellor] was to introduce taper relief, boosting business investment. Now they have almost doubled the tax burden. This is the politics of envy.
Verdict: 0/10
Felix Velarde
MD, Underwired (digital agency)
It’s annoying having to pay 80 per cent more tax on the next sale I do, but I’m not against paying tax per se. I read the whole report and generally it’s very good. The removal of taper relief does make sense to me, not from a personal point of view, but if you have a single level tax, there are fewer ways to avoid it. As things stand, variable taxes tend to be an advantage for the privileged who can afford to exploit loopholes. Nonetheless, it will personally lose me £1 million at some point.
Verdict: 8+/10
Ben Allan
MD, TILT (publishing company)
This has come as a shock. I expected something more targeted at the private equity houses, which had attracted all the media attention. This is a scattergun approach that will hurt growing businesses. It won’t make any difference to the way we run the business – it just means we have to sit down and work out how we’re going to do our exit. We were looking to sell in three to four years; now there’s not much difference between staying on and taking dividends, and selling out.
Verdict: 1/10
Andrew Stevenson
CEO, E-Synergy (investment group)
The withdrawal of taper relief is very discouraging. It’s hard to attract good managers to early-stage companies, because you can’t pay high salaries and therefore people are disproportionately interested in good capital gains prospects. When you virtually double the tax they’re paying on those gains, it’s a big disincentive. On a national level, it means the UK has gone from being the most attractive country in Europe in which to launch a technology start-up, to one of the least.
Verdict: 2/10
Francesca Lagerberg
Head of national tax office, Grant Thornton
As a pre-Budget report, this was more like an election manifesto. Clearly it was written in the expectation that as soon as Chancellor Alistair Darling sat down, Gordon Brown would get in the car to visit the Queen. The most dramatic change of course is in capital gains tax. Buy-to-let investors will be happy as their tax rate will go down from 24 to 18 per cent, but owner-managers who were banking on a happy retirement paying ten per cent on the sale of their business won’t like it at all.
Verdict: 4/10
Kip Kapur
MD, Barclays Ventures
There’s an argument that, on balance, taper relief isn’t such a great idea. If you’re locking someone in for the longer term, you’re cutting off that person’s exit. As for the 80 per cent hike in tax, that will hurt, particularly in the lower and mid-market where firms like ours operate. The tax rate is the same for everyone and yet it affects us more proportionately. If businesses are spending more money on tax, there’s less to spend on deals. We’ll probably see a lot of entrepreneurs looking to de-risk, although I don’t think there’ll be a rush of sales.
Verdict: 5/10
