Revolt grows over Darling's tax bombshell

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BUSINESS leaders will combine forces for the first time this week in an attempt to persuade Chancellor Alistair Darling to reverse his controversial tax changes which critics fear will stifle enterprise.

Leaders of the CBI, British Chambers of Commerce, Federation of Small Businesses and Institute of Directors will draft an unprecedented joint letter to Darling amid rising fury over his first pre-Budget report.

David Frost, director general of the BCC, said he had received more calls about the Chancellor's proposal to scrap taper relief on capital gains tax than any other issue during his seven years in the job.

Replacing taper relief with a flat 18% rate will mean an 80% rise in tax bills for some entrepreneurs and investors.

Frost, along with CBI director general Richard Lambert, FSB policy chairman John Walker and IoD chief Miles Templeman, says only a united front can change Darling's mind before the changes take effect in April. A BCC spokesman said: "It is the first time we have all come together so quickly. We are very concerned about the message this measure sends out."

Business group leaders met at the CBI's London headquarters on Friday to hammer out a strategy. Darling's abolition reverses what was seen as one of Gordon Brown's most business-friendly policies.

Darling came under pressure to alter the tax break because it allowed some private equity partners to pay just 10% tax on seven-figure pay packets. But outright abolition will catch family business owners, entrepreneurs and early stage investors seen as vital to the UK's economic future.

David Watt, director of the Institute of Directors in Scotland, said the Chancellor's changes would hit particularly hard north of the Border. "Scotland has a larger proportion of smaller companies than the rest of the UK," he said. "All of these changes have more of an impact on smaller businesses than on large businesses. I don't think the Government is being business-friendly."

The Chancellor also unveiled a smaller than expected budget allocation for Scotland.

Watt added: "The public sector is a large proportion of GDP in Scotland. If that slows down, the Scottish Government will have to be really clever to ensure the economy does not slow down."

Darling's proposals also cut capital gains tax for holders of non-business assets, such as second homes. Fears have been raised that investors will stop backing enterprise and put their cash into property.

Colin Lamb, capital taxes convener at the Institute of Chartered Accountants in Scotland, said: "The change will favour short term speculative investors in portfolio shares or buy-to-let properties. On the other hand, those who have invested long term in farm land or other business assets may find that, instead of paying tax at 10% on their gains, they will suffer tax at 18% on very much larger unrelieved gains."

Business groups are also angered by Darling's proposal to allow councils in England to raise additional business rates.