Nobody's Darling

Wed, 10 Oct 2007 10:48:07 GMT

It’s official. Alistair is no longer everybody’s Darling in the City, if he ever was.

There were a few long faces this morning in the Square Mile after yesterday’s shocking pre-budget report‘s changes to capital gains tax (CGT) rules. And not among our private equity capadres, who were expecting more of a bashing from the government than they got, but among our small business go-getters.

Mr Darling claims that by abolishing CGT taper relief he is going after the private equity lout that pays less tax than his shoe shiner. But the chancellor’s critics say he seems to be giving British enterprise a kicking instead, despite claiming to be rooting for it. The British Private Equity & Venture Capital Association, which lobbies for private equity, points out that CGT will now be higher here than in other European countries and will hit many smaller companies firmly in the wallet.

“The Chancellor has placed emphasis on innovation, enterprise and the need to maintain the UK’s competitive position,” says Simon Walker, chief executive designate of the BVCA. “However, we are concerned that the elimination of taper relief means all capital gains, including carried interest, will now be taxed at a single rate no matter how long they have been held. This move will hit not just private equity but thousands of venture capitalists, family businesses and small and medium-sized companies. A rate of 18% means capital gains tax is higher in Britain than France (16%), Italy (12.5%) or the US (15%) – let alone countries like Switzerland which have no CGT.”

Number crunchers at chartered accountants MacIntyre Hudson claim the proposals are “dressed up as a reform aimed at private equity” but are a tax increase with “significant implications for business owners” who exit their businesses or investments. They say that in actual fact many private equity executives who already avoid the 10 per cent tax rate, because they are non UK residents, will also dodge the new 18 per cent rate.

“I think a lot of private equity people are relieved they’ve not been hit as hard as they might,” one City fund manager told Cityblogger. “An 18 per cent rate is better than 40 per cent. Fine if you’re a private equity johnny-come-lately. But if you’d remortgaged your house to set up your own chip shop chain then it’s slightly rough justice. Those people are important wealth generators and it’s a strange political move if you ask me.”

Unsurprisingly the Federation of Small Businesses is fuming. “Our reaction is one of shock and disappointment,” a spokesperson complained to Cityblogger. “This is the second time small businesses have been hit this year following the increase in corporation tax, yet growth and entrepreneurialism is [supposedly] the government’s buzz word. I think that with anybody considering starting their own business if they feel [the regulation] is too much there’s a risk they won’t bother.”

Does this mean the days of watching the slaughter of business innocents on Dragon’s Den are numbered? Cityblogger who is a fan of the financial world's answer to the X Factor (sans the high-trousered Mr Cowell) hopes not.

This Darling man

Fri, 05 Oct 2007 14:15:43 GMT

Cityblogger was all set to tuck into a nice quiet Friday luncheon, accompanied by an equally charming little Merlot, when indigestion struck. Apparently our charming chancellor Alistair Darling will be unveiling the Pre-Budget Report (PBR) on Tuesday next week at 3.45pm precisely. Whoopee. And what a cheery performance it will no doubt prove to be after all Mr Darling’s recent grumblings on the crumbling state of the economy. He has been forced to redo his sums because of the global credit crisis and is downgrading his forecasts for UK growth next year. Suddenly Cityblogger felt sure he could taste something resembling a fly wing in his tomato soup…mmm..

Of course, not to be unfair to our Darling, most of the excitement today about the PBR is less about him and more about whether this means Mr Brown will be calling a November election. Some pundits think Gordy could still have time to make the announcement on Tuesday afternoon after Mr Darling’s turn and might in fact be spending this weekend mulling it over. On the other hand Mr Cameron and his friends put on a surprisingly strong performance at their conference this week and are catching up in the polls. One of my City contacts was so impressed she is, out of respect for Mr Cameron, considering adopting a hoodie.

However, David Buik at spread betting firm Cantor Index isn’t convinced. “I think an election won’t be called until Spring next year at the earliest and it could even be in two year’s time,” he argues.

And Mr Buik doesn’t think like there will be much in the way of sweeteners for investors or Johnny Voter in the PBR either. “It’s tough on Alistair Darling, but because of the credit crisis he’s going to have to forecast UK growth down to 2.2 or even 2.1 per cent for next year,” he says. “And because of the huge government commitment to education and the Health Service he’ll have to do more borrowing. But his scope for opportunities to sweeten the electorate are extremely limited. He could tinker with corporation tax or inheritance tax (IHT), but I think he’ll be struggling.”

Not to mention that if he does propose IHT changes Darling will look like he’s stumbled across George Osborne’s conference notes.

Meanwhile our tax-canny friends at Grant Thornton also think “room for manoeuvre on any major initiatives will be limited”, although there could be more incentives given by the government for companies going green.

Cityblogger will once again be hoping against hope that Darling ditches stamp duty on share trades - it’s a perennial wish but nothing ever seems to come of it, a bit like Cityblogger’s dream of West Ham winning the league. But there you have it. Meanwhile he plans to seek solace in another glass of Merlot. Have a good weekend.

The inside word from the City: Budget

Nobody's Darling

This Darling man