Cut taxes say FPB

Mounting taxes are leaving many of the UK’s smallest firms with an uphill struggle to survive, leading some to consider relocating outside the UK, the Forum of Private Business (FPB) is warning. The FPB is cautiously welcoming a commitment made by David Cameron, the leader of the Conservative Party, to cut taxes in order to prevent this exodus.

Speaking at a CBI conference on Tuesday,15 July 2008, Mr Cameron, who has been criticised for refusing to rule out some tax rises, warned that companies were ‘fleeing [our] shores looking for a better place to do business’.

“To give them reason to stay – to show Britain is serious about enterprise – we will cut the Corporation Tax rate to 25p and will reverse the increase in small business taxes,” said Mr Cameron, who spoke at the FPB’s inaugural Small Firms’ Summit. He revealed that he plans to pay for the cuts by ‘reducing complex reliefs and allowances’.

The Government is already slashing the higher rate of Corporation Tax, which is paid by big businesses, from 30% to 28%. The FPB is calling on Mr Cameron to see through his commitment to do more by pledging similar cuts to the lower rate Corporation Tax paid by small businesses. Currently, this is increasing from 19% to 22% by April 2009.

In addition, the FPB believes that lowering taxes should not coincide with the removal of established tax incentives, such as capital allowances for plant and machinery. The Government plans to clamp down on ‘income shifting’, whereby many small – particularly family-run – firms ease their tax burden by distributing income to employees as dividends.

“While Mr Cameron’s proposals on business taxation are welcome news, it is important that he makes good on his statements and addresses the disproportionate tax burden, as failure to do so will drive even more small firms away from the UK,” said Phil Orford, the FPB’s Chief Executive. “FPB research shows just how exasperated small businesses are with the current Government’s tax system.”

Research carried out for Referendum, the FPB’s quarterly survey of members, in 2007 showed a huge 97% of respondents saying that the UK has become a worse place in which to do business as a result of the Government’s tax system. In his speech, Mr Cameron said that the UK, which had the 4th lowest rate of Corporation Tax in the EU, now has the 19th lowest. He also said that the total cost of regulation for businesses has risen to £65 billion.

In a separate survey of the FPB’s members ahead of the 2007 Comprehensive Spending Review, 67% of respondents said that reversing the decision to increase small firms’ Corporation Tax would encourage them to reinvest in their businesses. Further, 49% indicated they would have extra funds to invest in skills and training, and 47% said they would be more likely to seek to grow their businesses.

The Conservative Party has also moved to underline its small business credentials by announcing a plan to simplify the tax system – including giving advance warning and increasing scrutiny of any proposed legal changes. In addition, Mr Cameron has unveiled measures to reform insolvency procedures to protect companies which face going into administration.