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Here is a question: which loophole has, according to The Times, ‘scandalised tax experts for years’ and costs the exchequer more than £2bn each year? Film schemes; employee benefit trusts? No – the answer is entrepreneurs’ relief. Many readers would take a different view and argue that the relief is a sensible measure which encourages people to sell, rather than hang on to businesses. After all there has been some sort of relief ever since capital gains tax was introduced. But is the relief too generous? There certainly seems to be a groundswell of opinion that it is. Most notably Sir Edward Troupe, newly released from the confines of civil service neutrality, said: ‘It gives £2bn savings to those who have already made their gains and provides no incentive for real entrepreneurship.’
If we accept that the tax system has a role in promoting entrepreneurship, how should it do it? You could argue that entrepreneurs need more support at the start rather than the end of the business cycle. So could that £2bn be used to give some sort of tax holiday for the first few years of a business or to help provide childcare for those whose family responsibilities prevent them devoting the time they need to get a business off the ground? Election campaigns are not conducive to rational thought about tax policy, but perhaps after the dust has settled whoever is in 11 Downing Street will commission some serious research about how best to use the tax system to encourage entrepreneurship. But please let’s not have any knee jerk reactions: this is important and demands proper consideration.
If you do one thing...
I feel that that the big problem is that in the UK there is a culture of making a quick profit. Hence the MBOs in the past which have been subsequently (in some cases the companies being quickly sold) and (I'm sorry to say because I know many indivuals in the sector), the number of private equity firms who are obviously looking for busines. I have come across many German business owners who have not wanted to sell but have wanted to pass down the family business to their children. Could this be a reason for (albeit up to very recently) the great strength of e.g the German manufacturing industry Of course, an additional factor being that Germans seem to focus on engineering and not accounting expertise! Perhaps we don't encourage enough our children to be engineers and not accountants our lawyers. The tax advantages of ER are great, and we have earned lots on fees, but in my view ER adds very little to the UK economy.