Previous Section | Index | Home Page |
Clause 5 ordered to stand part of the Bill.
Stewart Hosie: I beg to move amendment No. 8, page 3, line 20, leave out from (1) to end of line 21 and add
will have effect from a day which the Treasury may by order appoint.
(4) No order may be made under subsection (3) until
(a) the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of changes to the rate of capital gains tax on
(i) businesses seeking investment,
(ii) investors who normally pay tax via capital gains tax, and
(iii) the availability and cost of houses to buy and rent; and
(b) the report has been approved by a resolution of the House of Commons..
The amendment seeks to have the Treasury justify the changes it intends to make to the capital gains tax system and to have them approved by the House of Commons before any implementation. There are a number of reasons for that, which I will explain later, but the assessment that we seek from the Treasury will consist of three parts.
First and most important, what would the impact be on businesses seeking investment? For us, that is the most crucial area. As they stand, the Governments proposals will only damage business investment. For example, if someone who invests in a business and pays capital gains tax seeks the same cash return after tax under the changes, that will leave less profit in the pot for, say, a proprietor investor or a manager investor, who may no longer take the risk and seek that capital. If, on the other hand, the investor receives the gross amount and pays the additional tax under the new system, they may consider the risk not to be worth taking and decide to take their money elsewhere, perhaps out of the country.
Secondly, the Treasury should report on investors who normally pay tax via capital gains tax, not least because it would appear from all the reports that I have read and all the people to whom I have spoken that the changes to the rules have had the consequence, unintended or otherwise, of encouraging real investors to sell up and take their money out of businesses to avoid falling into the new tax regime. That has been evidenced by a flurry of recent newspaper reports, of which I shall give one or two examples.
In article entitled How Darlings ill-thought CGT fix has only made things worsenot exactly a snappy title, but one that sums it upthe Sunday Herald said:
The unseemly dash by owners of companies and other assets to beat the April 5 deadline for the capital gains tax changes introduced by Alistair Darling reached a crescendo last week. This extraordinary flurry of mergers, acquisitions and other corporate finance activity, which started gathering momentum last autumn, was sparked by many business owners decision that, rather than plough on with running their own businesses merely to hand over more money to the Exchequer, they would rather sell out now.
It has also inspired entrepreneurs and company owners right across the Scottish and UK business and industrial spectrum to sell upoften to private equity and vulture funds.
The Fair Investment website put the matter similarly:
Many UK business owners decided to sell up before the changes to capital gains tax took effect on April 6, while others transferred ownership to avoid the higher rate of tax.
The article, of 8 April, went on to quote KPMG tax partner David Kilshaw saying to The Times that this has been
the busiest end of financial year in living memory
as investors rushed to sell up before the new laws came into effect.
It is not only newspaper commentators and financial advice websites that have been discussing the issuepractitioners have also been talking about it. I am grateful to the Institute of Chartered Accountants in
England and Wales for its comments on this matter. It says that these highly controversial changes were announced
without proper prior consultation, with inadequate transitional provisions and with a lack of appreciation of the likely behavioural impacts and compliance costs that they would impose.
It also said that the announcements showed a lack of appreciation of the potential damage that they could
inflict on the international reputation of the UK as a place to live, work and invest.
I agree entirely with its assessment of capital gains tax reform in the 2008 Budget that
taxpayers should have been given more time to understand
the impact before implementation. That is fundamentally what I seek to do with amendment No. 8: have the Treasury provide all the detailed assessments that will be required for people to understand the consequences.
Mr. Mark Field (Cities of London and Westminster) (Con): Is there not a problem with that, in principle at least? If more time is given, that will allow the distortions that the hon. Gentleman mentioned earlier to happen, such as small business people wanting to sell when a radical change is proposed. How would his amendment get around that problem?
Stewart Hosie: I was just about to make that point. The hon. Gentleman is probably right, on balance, in relation to the previous debate on corporation tax, to say that changing things now might create distortion and uncertainty. However, this measure was proposed in the pre-Budget report and there was a flurry of panic, mainly in the Government ranks. The Government then changed things to introduce the £1 million lifetime entrepreneurs allowance, but there was still a lack of clarityI know that from speaking to accountants close to the end of the financial yearso I am not convinced at all, in this case, that a small additional delay until we get clarity from the Government would deliver the instability that the hon. Gentleman describes.
The third area that the Treasury should report on is the housing market, particularly in areas of Wales, Scotland and elsewhere where there is pressure on house prices, a lack of affordable first-time accommodation, particularly for those on modest wages, and a shortage of affordable private lets. The paradox of the CGT changes is that not only are they damaging investment in business and possibly driving investors to take their money elsewhere, but they have made speculation in the private housing market more attractive. That is bizarre at a time when there was already huge pressureparticularly in high-pressure areas and remote, rural areasand a shortage of housing combined with low wages. That is a catastrophic thing for the Government to do.
Again on the impact on business, tax is going up, as are costs such as fuel, energy and the transport of raw materials. Traditional funding routes have either dried up because of the credit squeeze or are very expensive, and the stock exchange and the alternative investment market are either inappropriate or too expensive for the kinds of businesses that seek private investment at the lower level. This is the wrong time to make changes to CGT that risk, even potentially, driving out investors from business. Let me give an example.
Historically, to get a stock market listing a company needed to be a £100 million-plus company, but the truth is that the figure was much bigger than that. Entry-level costs were £750,000, and so were fundraising costs; advisory costs were £250,000; and commission was 2 to 5 per cent. of the money to be raised. Even on AIM, entry level was about £300,000 and so was fundraising, commission was 2.5 per cent. and advisory costs were about £50,000. That was for companies looking to raise £2 million to £20 million. With traditional bank funding drying up and with other routes being beyond the means of most small companies, private investors were filling an important gap. If there is a riskI believe the risk is real and seriousthat the capital gains tax changes will force private investors with capital to take their money elsewhere, the change needs to be reviewed and revised. I was happy not to press my earlier amendment No. 7 on corporation tax, but although I will wait to hear what the Minister has to say and see whether she provides me with any comfort, if she fails to do so I am likely to press amendment No. 8 to the vote.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): Most of the debate on the Bill so far has focused, quite understandably, on clause 3, which doubles the 10p rate of income tax. The Prime Minister is, of course, personally responsible for the changes in clause 3and, indeed, clause 5, which we have just debated, as both were announced in the 2007 Budget.
Clause 6 is, by contrast, something of a home-grown own goal for the Chancellor, at least if we believe that he is the author of the 2007 pre-Budget report. Although the doubling of the 10p rate has delivered the short-term political damage, the fiasco of the pre-Budget report and the capital gains tax changes will have a lasting and negative effect on business sentiment. The manner of the introduction of such far-reaching changes to business asset capital taxation in the pre-Budget reportwith no consultation, no forewarning and little thoughtwas damaging enough in itself, but the signal that Labour was willing to sacrifice the interests of business to short-term political advantage was more damaging still. The substance of the proposal, at a time when the economy is slowing and public concern about jobs and prosperity is growing, sends a hugely negative message to British business and to Britains entrepreneurs.
Mr. Mark Field: Does my hon. Friend agree that, given the City of Londons position as an international financial centre, the sense of indecision and dithering and the impression created that the Government are, as my hon. Friend rightly points out, seeking to make political capital out of the situation rather than having regard to the long or even medium-term economic welfare of the country is likely to be extremely damaging, not just for our domestic businesses but internationally?
Next Section | Index | Home Page |