Treasury ministers will this morning hold a tense final consultation with business leaders on capital gains tax reforms as a prelude to unveiling long-delayed concessions on Thursday or early next week.
Leading employers’ organisations, including the CBI and Institute of Directors, will use Wednesday’s meeting with Andy Burnham, the chief secretary to the Treasury, to warn the government of an unprecedented backlash if it fails to give enough ground.
The pre-Budget report proposal to impose a single 18 per cent rate of CGT, scrapping the 10 per cent rate for business assets held for at least two years, provoked almost unanimous opposition from business.
Employers subsequently attacked as wholly inadequate a plan trailed by Downing Street to offer relief on £100,000 of profits for business owners who sell up and retire.
The EEF manufacturers’ body on Tuesday warned in a letter to Alistair Darling, chancellor, that it could “not stress enough the strength of feeling on this issue amongst the business community”.
Martin Temple, EEF chairman, said: “The last thing we in manufacturing need, as we move into a period of greater economic uncertainty, is anything that weakens investor confidence.”
Richard Lambert, director-general of the CBI, characterised the imminent announcement as a “litmus test for business” in terms of its view of the government.
Some business organisations argued on Tuesday that the government’s mishandling of the issue, including the lack of advance consultation and protracted delays to the announcement of the final regime, had already caused potentially irreparable harm to relations with Labour.
“Even if the chancellor comes to a nice solution, the vast majority [of small businesses] will not appreciate the delay – it’s left a sour taste,” said Stephen Alambritis, head of parliamentary affairs at the Federation of Small Businesses. “Irrespective of what [the Treasury] do now, a lot of damage has been done by the way in which it has been handled.”
Michael Fallon, a Conservative member of the Commons Treasury committee, said the CGT change had “robbed [Labour] of their political credibility with business”.
Employers are lobbying for more favourable tax treatment for business than non-business assets, arguing the proposal to tax entrepreneurial gains at the same rate as windfalls from second homes sends the wrong signal about enterprise.
But business fears the poor state of the public finances may restrict the chancellor’s room for manoeuvre. The pre-Budget report changes are forecast to raise £900m a year, but the retirement relief signalled by Number 10 would cut this by £100m, with the substantive U-turns demanded by business reducing revenue further.
“The concern is that this is all about a great tax take from business,” said David Frost, director-general of the British Chambers of Commerce. “This has never been about simplification – this is about the intention to raise £900m. Looking at the awful state of the public finances . . . they’re clearly scrabbling around to see where the money [for concessions] is going to come from.”
