Alan Sugar is the latest to join an angry chorus of
pro-enterprise voices speaking out against the increases to Capital Gains Tax (CGT) expected in
Tuesday's Budget.
The Coalition government has been explicit about wanting to
bring CGT rates in line with income tax - meaning that money made
on 'non-business assets' could incur a tax penalty of 40%, a
whopping increase from its current 18% haven.
There are two reasons the proposed CGT increase would be such a
catastrophe for enterprise. The first is that it would massively
deter investors from putting their cash into promising young
start-ups, rather than making safer investments. (Since currently,
the risk of investing in a start-up is made worthwhile by the
lucrative possibility of making a shedload of cash and only being
taxed 18% on it.)
The second reason works even more directly against business
starters, regardless of whether or not they take VC or angel
funding, as they would face the same tax rate if they sold their
business as if they were earning an income from an employer. In
other words, it gives potential business starters far less
incentive to risk leaving a career in the hope they'll make a
million doing it for themselves.
There are shades of grey here, as 'non-business assets' is a
debateable term. George Osborne has said he will use it to refer to
assets like pensions and second homes rather than start-ups - but
the business world is rightly very concerned that that
differentiation simply won't transpire when the new CGT rate kicks
in.
Lord Sugar summed it up during a debate on small business policy
at the House of Commons thus: "[Raising CGT] will have a
devastating effect on enterprising people's desire to take the lead
and set up their own business with a view of either floating them
or selling them by way of a trade sale."
He laid into the entrepreneurial relief currently in place too,
that means you only get taxed 10% on the first £2m of capital
gains, implying it was rather token in most cases. "In this day and
age this amount falls short of the aspirations of real growth
companies, especially those in the technology sector."
Sugar said the 'big payout' from selling a business was the main
goal of entrepreneurs and their employees. "Most devastated will be
those business or asset owners who have worked honestly and hard
all their lives and are reaching an age where they are considering
a sale."
He's not alone in his anger. According to research by the British
Chambers of Commerce, half the UK's businesses oppose the increase.
Among countless entrepreneurs on Twitter and in the news,
big-hitting opponents include the British Chambers of Commerce, the
London financial newspaper City AM (which has waged a
campaign against the CGT increase), The Telegraph (which
launched a petition against it, and members of the high-profile
entrepreneurial group The Supper Club (93 of whom signed a letter
to the chancellor explaining their disagreement earlier this
month).
And yet this new government has repeatedly said it's pro-small
business, pro-enterprise. So you might justifiably wonder what the
[insert swear word of your choice] George Osborne actually thinks
he is playing at. Well, David Cameron says CGT 'tax avoidance' costs
the economy £1bn a year.
But the thing is, raising CGT has actually been proven to hurt
economies, as this article neatly proves.
There is a glimmer of solace at the end of this murky tunnel.
Rumours trickling out of the Houses of Commons suggest all these
bellows of dissent have dissuaded Osborne from making the increases
quite so aggressive.
But we'll just have to wait until Tuesday to see if Osborne has
really listened to the entrepreneurs of this country.
We'll be covering the Budget live this Tuesday from
12:30 pm. Find otu more and set a
reminder here.