I have just done a press interview on entrepreneur's relief, which is the provision that reduces the tax rate on gains made of up to £10 million on the sale by a person on most stakes in privately owned businesses.
I explained I thought the relief, which costs about £2.7 billion a year, was wholly unnecessary. First, that's because real entrepreneurs will be entrepreneurs come what may because, as it has always been for me, having a boss is unimaginable for a moment longer thjan strictly necessary. In that case the tax relief is not needed to induce people to start businesses and so the spend does not change behaviour, and so is a waste of money.
Second, very clearly the relief is not to encourage entrepreneurial activity: it's given at a time when people cease to be entrepreneurs by selling out of their businesses and effectively declae themselves redundant with regard to its activities in most cases, meaning that again there is no benefit to the spend.
Third, the relief has really unfortunate behavioural consequences. That's because, by increasing the reward from sale it encourages sale too early, or when the business has not reached optimal size for moving on, or when it is still actually dependent on the entrepreneur who has been given an inappropriate incentive to quit. All are negative for the UK economy.
And last, the relief is largely argued for by people who have never set up, run or sold a business (politicians, bankers, business advisers who have been promoted into partnerships and paid ;lobbyists, incduing those in professional institutes) and so have no real idea about the process, which I certainly have. They think tax is important to real entrepreneurs in a way that is just not true.
So let's abolish this relief. There would still be a reduced tax rate of 28% on these gains.
But I would like the money to be used to encourage entrepreneurship. Give it to a national investment bank. Make it available as equity and grants for small businesses. Many such sums paid will be less than £10,000 but could transform small business prospects. Some would be bigger, of course. But in all cases this would be about encouraging entrepreneurship at the time when the business needs help. The last occassion when that is needed is when it is sold at a gain.
So let's say goodbye to a releif that makes no sense at all.
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This £2.7 billion represents just under 3% of a larger problem with the approach and analysis of Osbourne and the Treasury.
There is in the region of £100 billion of what could be collected taxes in the form of tax subsidies like the so called entrepreneurs tax relief.
In effect it is a form of Government spending.
At a time when so called “efficiency savings” exercises are being conducted to ascertain the value to society of Government spending it makes no sense to focus totally on assessing the value of publc spending and ignoring any efficiencies which can be obtained by cutting these giveaways of free money to those who already have more than they need but who are so greedy they can never have enough.
To be fair, some of this type of exercise has already taken place with the cuts in seed corn investment funding and breaks to our green energy sector. However, this merely highlights the point that neo liberals, whether they are blue, red, yellow or purple, take from those who have little and give to those who have most.
“There is in the region of £100 billion of what could be collected taxes in the form of tax subsidies like the so called entrepreneurs tax relief”
Oh dear. So you want to remove capital allowances?
Additionally have you seen some of the statements made by the person who conducted that research. He seems to think if a company buys a truck for 100 then the Government gives the company 110. Are you sure you want to stand by his findings?
HMRC say there are £100 billion of tax spends
This is not referencing ‘that’ work
You are wrong as ever
I would not wish to get rid of all such spends
There are billions I could and would eradicate
It would certainly be benificial from your point of view Jim to jettison the Kipper impression in which you pick out a sentence in a contribution and put your own different context 180 degrees to what was actually being said. It gives reasonable people a negative impression of you.
It’s not hard to understand that the point being made in the subsequent paragraph is that anyone, Government or otherwise, who is serious about difficult decisions in reviewing spending and value for money needs to apply the same approach to the relief given away/taxes not taken up as it does to spending. Why does value for money dictate spending cuts when it is absent from Government thinking about reliefs?
Where is the Green Book assessment of the value delivered by that £100 billion of tax expenditure on reliefs?
Given your track record it is unfortunate that there will be very few people who read this site who will likely be holding their breath waiting for a sensible, coherent, joined up response to those questions.
I agree this relief is far too generous given the austerity faced by those on benefits of one description or another including the working poor!
Business aset taper relief was fairer when originally introduced.
I’m afraid those in power don’t care and are happy to support “making a fast buck” which is the City of London ethos!
Hansell you talk about the 100 million in your sanctimonious way as if it’s a tax freebie given to rich individuals. You know and I know that it includes capital allowances. To advocate that they are a freebie is nonsense of the highest order to any impartial thinker. You do nothing but rehash your left wing dogma on an article by article basis.
Sure it includes CAs
BUT there is no right to tax relief on capital
Correct but any other approach would be madness. There are reliefs out there but could be curtailed but the likes of Hansell fall down because they want to include perfectly logical reliefs as if they are some conspiracy between government and nasty business owners. He does it simply to inflate the figures and stir guardian readers into a state of frenzy. If everyone was sensible then perhaps everyone could take stock of what reliefs might be sensible to withdraw. You did this in your post. But Hansell wants his 100 billion headline number which undermines your cause.
Go and read Jolyon Maugham’s blog this morning
And stop talking utter nonsense
Once again Jim you deliberately miss the point in favour of the tired refuge of an ad. hom. Really, what has labelling anything you don’t want to understand as left wing got to do with the price of fish?
The Government in its spending review and through the Green Book applies a value for money criteria to public spending but fails miserably to apply the same criteria to tax reliefs and subsidies – except when it comes to cutting support our green energy SME’S.
That is not just partisan it is inefficient and dogmatic. Particularly in the context of also cutting subsidies to improve the energy efficiency of legacy housing stock not occupied by people those like yourself touch their forelocks to and paying well over the odds, wasting vast sums of taxpayers money over decades, for the Chinese and the French to build nuclear power plants.
If you want to go on record as supporting such inefficiency and economic dereliction of duty on the part of the Government that’s your problem. Reasonable readers can easily see through the rather facile projection of your own faith based dogma onto others as the poor substitute it is for dealing with the actual issue. Trying to constantly redefine the issue to something to stay I your narrow comfort zone is not impressing anyone.
This article is bit like the Gladwell book on outliers – it focusses on the successes. But there should be some praise for the majority of entrepreneurs who tried just as hard but lost.
As an example, the decades long war on cigarette addiction has yielded enough patches, tips and gadgets to fill a museum. We could even open one and call it the Imperial (Tobacco) War Museum, ho ho. I expect a few more years of life thanks to the arrival of e-cigs, and am incredibly grateful for all those who tried but failed to make money out of the cessation industry as they have built the foundations for the successful product we now have.
Mr Murphy
I think you have blogged to the effect that taxation exists to prevent an economy from going into inflation. The latest data suggests that, thanks to oil prices, the UK is likely to be in deflation, so surely we need to reduce taxes. Which taxes would you reduce?
We could reduce taxes
Start with VAT
Increase tax on large business though
And then cut employer’s NIC
And then read The Joy of Tax
VAT and NICs each raise about £110 billion each year. How much of that £220 billion could be transferred to “large business”? For comparison, corporation tax raises about £40 billion, and there are about 7,000 businesses in the UK with over 250 employees, out of about 5.4 million businesses of any size, but they account for about 40% of employment and about 53% of turnover.
Even if you could double corporation tax receipts to £80 billion, you could only reduce VAT and NICs receipts by about 20%, so cutting the rates from 20% to say 16% and 13.8% to say 11%. Is that what you are thinking? Do you think a doubling of corporation tax receipts is feasible?
Then, who actually bears the incidence of corporation tax? The companies themselves, or their shareholders through lower returns on capital, or perhaps consumers through increased prices and/or employees through lower wages?
I was talking incrementally
No one said cancellation here
Why not engage with what I said?
Please also note I was suggesting actual cuts in tax: it’s called fiscal stimulus. Again, I was not suggesting shifts
As for incidence: I have dealt with that issues, endlessly
“We could reduce taxes. Start with VAT.”
Reducing VAT – even by the odd percentage point – would be the surest fire way to lose a shed load of tax revenue very quickly. It is generally agreed that when it was reduced in the last recession it did little or absolutely nothing to stimulate consumer demand, whilst losing a lot of revenue. Most people simply have no idea of how much VAT they pay, which is why governments love it. The UK’s VAT rate isn’t that high compared to many other EU states, and the EU Commission has been gunning for our zero-rated and reduced-rated products for years.
“BUT there is no right to tax relief on capital”
But that’s only because there is a specific exclusion for tax relief on capex in computing income profits. But that statute carries exactly the same force as the alternative which allows it (which is capital allowances).
Utter nonsense
We were growing in May 2010
We sure as heck weren’t soon afterwards
What you have said is as close to codswallop as it comes
As you are also wrong on capX: they are not substitutes at all
Tax reductions tend to concentrate in high-income sectors of the economy, producing inflation locally while deflation persists elsewhere. A broad spending program would more effectively counteract deflation nationwide.
I’m wondering how, in a competitive economy, a company would get away with raising prices just to make up for paying extra tax – as Andrew suggests. How does that work?
We do not have a competitive economy
Most prices in the UK economy are set admi istratively in that manner, and somehow they “get away with it”