Monday, May 03, 2010

Screwing business—the LibDem way

Iain Dale has a letter from one of his readers concerning the LibDim manifesto policy of taxing capital gains at 50%.
Sorry for emailing out of the blue, but I thought you may be able to help me hi-light an issue with the Lib Dem's manifesto that has gone largely unreported, despite its potentially damaging consequences for the economy and in particular to those who dedicate themselves to starting and growing businesses (and creating jobs for others) such as ourselves.

I'm a young entrepreneur (26). I've so far set up two, soon to be three, companies that between them employ 7 full-time members of staff - hopefully more soon. We've undoubtedly suffered through the recession (one of the companies is involved with graduate recruitment, a particularly hard-hit sector), but we've managed to make it through.

The NI increase put forward by Labour wouldn't be great for any of the companies at this time, but there's a bigger issue that hasn't been getting very much attention - the Lib Dem's proposed Capital Gains Tax changes.

From the point of view of an entrepreneur these changes are a real kick in the teeth. They basically mean that, should any of their endeavours bear fruit in the form of the sale of a company, they would be taxed not at 10-18%, but at "income" rates of up to 50% (and with a reduced annual allowance too). That's hardly encouraging anyone start or grow a business; in fact quite the opposite.

It's even more worrying when you consider investors. I'm not sure about your own ventures, but two of my companies are backed by 'angel' investors. They have been prepared to take a large personal risk with not insubstantial sums in order to help these businesses get off the ground. Part of the reason they've been able to take these risks is that their investment gains are taxed at 0% (if EIS relief is granted) to 18% (standard rate). Under the Lib Dems, they would also be taxed at up to 50%. This would effectively make the investments of many such 'angel' investors, once risk is taken into account, uneconomic - they therefore just won't invest. This could cripple many startup companies at a time when we should surely be looking to expand the economy and create jobs by encouraging new businesses.

As someone who has always worked for small businesses, I can appreciate how important it is to get investment. It is always hard to do so and, with the banks still bruised, it is even harder to do so right now.

This policy will screw new businesses. And it is new businesses that create new jobs—studies have shown that large, established businesses tend to be static in terms of vacancies.

And I know that this may seem obvious, but the LibDims' exciting Personal Tax Allowance of £10,000 is worth stuff all when you've got no income at all...


JuliaM said...

"This policy will screw new businesses. And it is new businesses that create new jobs..."

Are you sure about that? Because I've heard our esteemed Prime Mentalist say on several occasions recently that it's the government that is creating jobs... ;)

microdave said...

@ JuliaM - the definition of "Job" is obviously open to interpretation....

Peter Carter-Fuck said...

Greens are Communists minus the belief in heavy industry.

Idle Pen Pusher said...

It's not the only bad Lib Dem policy

Though I have to say harmonising capital gain and income into a single rate is, in itself, a good thing. What this does is highlight how iniquitous the 50% level is, rather than any reason why capital gain should be taxed at a different rate to income.