Darling must scrap his tax attack on entrepreneurs

Gordon Brown can’t stop himself from meddling, even with his own good ideas. Soon after he moved into No 11 Downing Street, he introduced one of the best pro-growth capital gains tax regimes in the world. Last week his Chancellor Alistair Darling, with Brown grinning approval beside him, undid much of that good work in one fell swoop.

Their primary target was the City’s private equity industry; but their destructive 80 per cent tax hike will also ensnare farmers, entrepreneurs, small companies quoted on the Aim market, life assurance companies, 1.7 million employees who participate in company share schemes, business angels and venture capital funds, to name but a few. Combined with a previously announced corporation tax rise from 19 per cent to 22 per cent for small firms, this makes Britain a dramatically less friendly place for entrepreneurs from next April, when the changes are due to kick in.

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Julie Burchill

Will I ever pee again?

For once, the main business groups have done the right thing: they have put aside their rivalries and are mounting a concerted campaign to convince Darling to change his mind. The joint letter they have written to the Chancellor is laudably robust.

Under the old system, introduced in 1998 and subsequently improved, ‘taper relief’ ensured that the tax payable on capital gains fell to 10 per cent for certain assets held for as little as two years, rather than the maximum 40 per cent rate. Private equity firms almost invariably paid only the 10 per cent rate, as did entrepreneurs selling shares in their businesses that they had held for at least two years.

Taper relief will now be abolished, as will the sliding-scale rates of capital gains tax, to be replaced instead by a single, flat 18 per cent rate applicable to all types of assets regardless of the period of time for which they are held, meaning that many will be hit by an 80 per cent tax increase.