Tax reforms damaging, industry says

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Following strong criticism from industry, Chancellor Alistair Darling unveiled a new capital gains tax "entrepreneur's relief" providing a 10% tax rate for up to a £1 million of gains.

Mr Darling said 80,000 businessmen are likely to qualify for the relief at a cost to the Treasury of £200 million a year, although capital gains of more than the £1 million threshold will be taxed at the new standard rate of 18%.

Industry groups gave the Government credit for listening to their concerns but complained that business will still pay an extra £700 million in taxes from April at a time when the economy is under pressure.

Richard Lambert, director general of the CBI, said: "This is superficially quite clever and on the surface might seem like a relief after three months of uncertainty, but even the smallest business owner will lose taper relief and indexation and be worse off than before October.

"The bottom line is that the reaction of the UK Government, in the face of an economic slowdown, has been to slap on a major tax hike of £700 million.

"This will have a damaging effect on job creation, investment and savings at exactly the wrong time in the economic cycle.

"The relationship between Government and business has been damaged by this affair and will take time and effort to rebuild."

The Federation of Small Businesses welcomed the changes but warned that small businesses' trust in the Government was damaged by the original proposals and the uncertainty over revisions to them.

Chairman John Wright said: "We welcome these plans, but the way in which the whole issue has been handled has seriously eroded small businesses' trust in the Government. There has been huge uncertainty about what small businesses' tax liabilities would be from April 2008 and this has made planning for the future very difficult."