The government’s decision to abolish capital gains tax taper relief has led to 43% of small and medium sized businesses to change their investment plans, according to a survey by the CBI (Confederation of British Industry).
The survey, which polled 500 companies across all industry sectors, found that 40% said the changes would have a negative impact on their businesses, with this rising to 57% for those who held equity in the business for more than 10 years.
Just over 40% said they would become less entrepreneurial, while 36% said they had changed their minds on investing in existing businesses.
70% of all those polled said that decision to switch to a flat 18% rate on business sales had undermined the government’s approach to enterprise, and 72% believed that its commitment to enterprise was in doubt.
John Cridland, deputy director general at CBI, said: “The government’s standing with business has been sorely undermined by the proposed capital gains tax changes, and there is a lot of damage to be repaired.
“Entrepreneurs are now less inclined to do what they do best: taking risks, investing in idea and driving the economy forward.
“These changes are trampling on the spirit of enterprise and discouraging entrepreneurs from investing in their businesses. The market is also being distorted as firms rush through plans for sale.”
The results of the survey were published as a Labour-dominated Commons Treasury Committee said that it was concerned by the lack of consultation surrounding the scrapping of taper relief on capital gains.
It warned that the move could have a detrimental effect on small businesses and said that it would impact people who were about to sell their firms and retire especially hard.
John McFall, the committee’s chairman, said: “Tax simplification is a desirable objective, but the reforms of capital gains tax will have an immediate impact on many individuals and businesses that have sought to plan ahead.
“There is a window of opportunity for meaningful consultation between now and the 2008 Budget, and the Treasury needs to establish clearly the terms for such consultation.”
