War of words over business tax grows

SCOTTISH business leaders have thrown their weight behind a furious attack by the CBI director-general on the government's decision to abolish taper relief on Capital Gains Tax (CGT), though there are doubts as to whether the crisis-hit Chancellor Alistair Darling will bow to pressure.

Richard Lambert, the director-general of the CBI, speaking ahead of the body's annual conference in London next week, pledged to lobby "as hard as he knows how" to pressure ministers to reverse planned changes .

Lambert said firms will be "seriously affected" if the planned near doubling of CGT from 10 per cent to 18 per cent goes ahead.

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Alan Wilson, chief executive of the Scottish Council for Development and Industry (SCDI), who has written to the Chancellor on the issue, called Darling's decision "damaging to Scottish business and the Scottish economy" and dismissed as inadequate the government's attempt to quell business dissent via a 100,000 retirement allowance, seen as a partial U-turn.

"The retirement allowance fails to provide enough protection to business and investors and leaves unsolved the problem of private equity speculators failing to pay an appropriate rate of tax on their income," Wilson said.

Liz Cameron, director of the Scottish Chambers of Commerce, said: "I suspect Richard Lambert is expressing the views of the vast majority of business opinion in Scotland.

"This whole CGT proposal is simply one very big mistake and one suspects that the Chancellor was poorly advised about the adverse affects on small businesses. Put in tight corners, ministers don't like to make U-turns but a reversal of the CGT proposals is the only honourable solution."

Lambert said that the shock tax announcement in the Chancellor's Pre-Budget Report had caused more controversy among CBI members than any other issue for years. "It was a mis-judgment and a misunderstanding of the role that tax plays in business," he argued. "A lot of businesses have built their plans on an assumption that the regime Gordon Brown introduced when he was Chancellor, was something that could be relied on."

While discussions are being held between Treasury officials and business leaders on resolving the issue, Lambert added: "The problem the government has is that they need money to plug a funding gap. What we are saying is they won't do it this way."

Lambert said he believed an "army" of tax accountants will be employed by firms to work on their tax arrangements before the end of the tax year if the issue was not resolved.

The CBI leader said the controversy had "set relationships back" between business and the government because even firms not directly affected by the tax change were questioning the Chancellor's actions.

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Darling himself is likely to receive a cool reception when he addresses the CBI conference next Tuesday, at a time when the government is also under increasing pressure because of the Northern Rock and missing child benefit data crises.

Andrew Watson, spokesman for the Federation of Small Business Scotland, sounded a more cautious note, hinting that excessive stridency from employers groups could be counter-productive.

He said: "The views of our members are different to those in other Scottish business organisations. We have commissioned Ernst & Young to come up with fully costed alternatives that stands up to scrutiny that will plug government finances without harming small businesses."