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Entrepreneurs' Relief Cut

Posted 9 months ago

Entrepreneurs' Relief Cut
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Author: Stephen Hazell-Smith, Chairman of NextFin

Does our Chancellor and the Treasury understand capital formation for entrepreneurs?

Entrepreneurs’ Relief has been spotlighted by the Institute for Fiscal Studies (IFS). March 11th’s Budget will be a test of whether or not Sajid Javid understands the dynamics behind investment in Britain’s smaller companies.

The IFS has been suggesting to the Treasury that Entrepreneurs’ Relief, which restricts Capital Gains Tax (CGT) to 10% for those who own 5% or more of a company is just a benefit for our nation’s rich and therefore should be abolished. It makes me wonder whether they had a hand in writing the recent hopelessly off beam Labour Party Manifesto.  Indeed It demonstrates a total lack of understanding of how risk capital is provided to our early-stage companies that are the acorns from which mighty, tax producing, companies grow.

All over the UK businesses are started on the back of entrepreneurs and individual capital providers who are prepared to take massive personal risk in return for knowing, should their acorns take root, they will not be hit with a penal rate of CGT. Can it really be that  Sajid Javid is so stupid as to come along and say "sorry boys and girls, yes of course, I applaud what you are doing but, tough, I want more tax from you"? The answer maybe is yes. Why? Because we need to take a look at just who the staff in the Treasury are. The previous Permanent Secretary to the Treasury, Sir Nicholas Macpherson, let the cat out of the bag when he commissioned a report in 2012 from a lady called Sharon White into staff turnover. She found that turnover in the UK Treasury was three times higher than anywhere else in the civil service. In a put-down worthy of Maggie  Smith in Downton Abbey, she remarked: "such a high turnover is more commonly found in semi-skilled parts of the service sector such as call centres or hospitality". Actually Macpherson went one better than that when he drily observed to Alistair Darling, the then Chancellor, at the time of the 2008 crash that there were only 3 people in the Treasury then who had experienced a recession (see Alistair Darling’s autobiography "Back from the Brink").

The upshot of all this is much of the Treasury is comprised of graduates taken straight from university who of course have no experience whatsoever of commerce and capital formation (the redoubtable Sharon White noted the average age of a Treasury employee was just 32). Little wonder then that these people have no understanding or interest in how entrepreneurs attract capital. But, I hear you say surely Sajid Javid’s financial experience accumulated from when he worked in the City will override all that? I am not so sure. Most of his time at Deutsche Bank was spent in credit trading and emerging market debt restructuring so not much first-hand experience of capital formation for entrepreneurs there!

I have met Javid and in my view, he is undoubtedly a cut above the average minister that inhabits Number 1 Horse Guards road but here he may be swamped by the ignorance that surrounds him in that building. Accordingly, can I suggest you lobby your MP on Entrepreneurs’ Relief? They will definitely pass on your concerns to him and the more who do so, the more the chance is that sense will prevail. Meanwhile, let’s all pray that the force is with the amazing Dominic Cummings and he cuts a swathe through the Treasury and elsewhere in Whitehall. One can always dream!

Author's Postscript:
I see Sajid Javid has just resigned as he refused to allow Number 10 to get rid of some/all of his SPADs. I think this is an excellent sign that at long last Cummings & Co may be allowed to totally re-shape the Treasury into an Office of State fit for purpose. Next stop the Foreign Office?

Tagged: Entrepreneurs News

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