Savers, entrepreneurs and shareholders hit as Chancellor Jeremy Hunt to launch £13bn raid on UK PLC
- Hunt looking for ways to close £50bn-plus black hole in public finances
- None of the policies has been confirmed by the Government
- Business leaders have warned that fresh tax raids could stifle growth
Tough choices: Jeremy Hunt aims to close the £50bn gap in public purse
The Chancellor was yesterday urged not to tax businesses ‘into the ground’ as he weighs up a fresh raid that could cost companies and entrepreneurs tens of billions of pounds.
Jeremy Hunt is looking for ways to close a £50billion-plus black hole in the public finances.
Latest ideas floated include changes to capital gains tax (CGT) that could raise as much as £9billion as well as a dividend tax shake-up that could bring in an extra £2billion.
Also potentially on the cards is a squeeze on the banks that could deliver £1.8billion. None of the policies has been confirmed by the Government.
But they would add to the burden caused by corporation taxes already climbing from 19 per cent to 25 per cent next April.
Business leaders have warned that fresh tax raids could stifle growth at a time when firms are already battling surging energy costs, higher interest rates and a looming recession.
Tax experts also cautioned that steep increases might backfire by forcing wealth creators to flee the country or take other measures to avoid the extra charges.
Tina McKenzie, policy chairman at the Federation of Small Businesses, said: ‘Filling the hole in public finances cannot and must not be achieved at the cost of taxing small firms and self-employed people into the ground, especially at a time when they are facing so many other headwinds.
‘It is a false economy to kill off any chance of recovery and growth until the middle of the decade.’
Roger Barker, director of policy at the Institute of Directors, added: ‘Business confidence is already at a low ebb, and the further squeezing of business through higher business taxes would do little to rekindle a more positive business outlook.’
Raising corporation tax to 25 per cent already looks set to boost Treasury coffers by £12.4billion in 2023-24.
But more tax rises and spending cuts will be needed to close the UK’s yawning budget shortfall. Increasing the CGT rate could make a big dent.
The tax is charged on profits made from selling investments including shares as well as properties that are not the main home.
Currently rates vary between 10 per cent and 28 per cent depending on the type of asset being sold and the income of the taxpayers.
It has previously been suggested that these should rise closer to income tax rates, which are much higher.
However, accountants at business advisory group Azets think that such a steep increase could mean the wealthy minority who pay the most in CGT make efforts to avoid it.
They estimate that after a hike the tax could yield £23billion in 2023- 24 – an extra £9billion.
Chris Sanger, head of tax policy at accounting giant EY, said this would need to be balanced with tax reliefs for those selling their businesses to avoid the risk that ‘entrepreneurs would prefer to leave the UK rather than remain to become business angel investors’. Meanwhile, a mooted 1.25 per cent increase in the dividend tax could bring in £1.34billion. But it could hurt business owners who pay themselves through dividends.
In addition, halving the level of dividends which are free of tax, currently £2,000, could bring in an extra £660m, according to Azets.
Banks could face a squeeze if an 8 per cent surcharge on their profits, which is on top of the 19 per cent corporation tax rate, remains in place.
That would mean when corporation tax rises in April, the overall rate for banks would climb to 33 per cent, bringing in an estimated extra £1.8billion but making London’s tax environment less attractive for financiers than rival cities such as Frankfurt, Amsterdam and New York.
A spokesman for financial services trade association, UK Finance, said: ‘We urge the Government to consider the surcharge very carefully and not put at risk the competitiveness of the UK’s banking and finance industry.’
Other plans floated for Hunt’s fiscal statement on November 17 include a beefed-up windfall tax on energy firms that could raise £40billion over five years.