Clause 7
Finance Bill
2:00 pm
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
It is a pleasure to serve under your chairmanship, Mr. Cook.
Clause 7 introduces the concept of entrepreneurs relief, about which there will be a fair bit to say as we go through schedule 3. I should perhaps place on record that we remain unconvinced by the Government’s approach of using entrepreneurs relief as a response to the outburst of anger in the business community at both the substance and the manner of the abrupt abandonment of taper relief. However, in the context of our work in the Committee, we will focus on probing some of the more obvious weaknesses in how entrepreneurs relief has been cobbled together.
The approach is clearly modelled on retirement relief, which was a feature of the capital gains taxation system prior to the taper relief system. Retirement relief was causing practical difficulties when it was scrapped. There are concerns that some of the problem areas of retirement relief have been imported to entrepreneurs relief.
The starting point for our approach to the clause and to schedule 3 is that entrepreneurs relief—it is subject to the £1 million cap, which is a big caveat—should seek to restore as much as possible of the beneficial effect of taper relief. Where the Government have tightened up the availability of entrepreneurs relief so that it is more restrictive than taper relief—the case in almost every area—we will want to highlight that, and explore with the Government why they have chosen to do so, apart from the obvious reason that they do not want to spend any money. This was a concession extracted under duress. In particular, and to echo the words of the hon. Member for Taunton, we will want to explore the likely effects of that restrictive application of entrepreneurs relief on the economy.
The context is that taper relief was the Labour party’s great claim to business-friendliness. Whenever anybody asked about the Labour party’s relationship with business, taper relief was wheeled out and waved around as an example of how the party understood and empathised with the aspirations of business people. So the scrapping in the pre-Budget report of taper relief, without any consultation or advance warning, caused a shock wave to run through the business community. A hugely negative signal was sent and huge anger provoked.
The Minister quoted a couple of entrepreneurs who spoke favourably of the process. She could have attended a number of large meetings where she would have heard a vocal view to the contrary. I do not doubt that the measure was popular among the second-home-owning community and the buy-to-let landlord community. However, I think that privately she would acknowledge that the views that she expressed represent a tiny minority among the entrepreneur community, not just because of the material consequences of the change but because of the perception that a signal was being sent that the Government and business were parting ways and that the Government were no longer interested in courting and supporting the business community.
The Government chose to deal with their private equity problem, which they were under pressure, including from the unions, to address. They chose, perhaps chiming with the moves made in the Budget of 2007 in relation to income tax, to send a signal to middle England—to middle-income taxpayers who are typically the second-home-owners and buy-to-let landlords who will be the great beneficiaries of the change. Then, of course, they were forced into a U-turn in response to the united front presented by business. I well remember meetings with the representative business organisations, including the CBI, EEF, Federation of Small Businesses and British Chambers of Commerce. It is extremely unusual for them to be united, but they sat at the same table with exactly the same agendas.
The Government’s introduction of entrepreneurs relief is a cynical response. They have looked at the organisations that led the charge and at how many voters each of them represents and decided to address the problems of the very small businesses—those represented by the Federation of Small Businesses—because it involves lots of voters, including the families and friends of small business people.
We welcome the concessions that have been made in entrepreneurs relief to small, mainly lifestyle, businesses. The move will greatly reduce the impact on many small business people’s retirement funding plans. However, we question whether it is based on sound economics or knee-jerk politics. Contrary to what the Financial Secretary said—I am willing to take her on at any level in any forum on this—the entrepreneurs relief does nothing whatever for serial entrepreneurs. It is a perverse arrangement because, in fact, it rewards those who are moderately successful, but nothing for those who are spectacularly, mind-bogglingly successful in creating high-risk, high-success businesses that go on to create jobs and wealth, and to become the scalable companies that will provide the backbone of the British economy in the next generation.