by Catherine Woods - Wednesday, 10th October 2007

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No doubt aware of the hullabaloo his first pre-budget report was going to cause, Chancellor Alistair Darling argued that 18 per cent is “one of the most competitive single rates of any major economy”.

Apparently, Darling wants to make sure those naughty private equity firms that have taken advantage of the tax system pay their fair share. He said making changes to capital gains tax and getting rid of tax loopholes will achieve this.

But Ernst & Young head of tax Paul Davies is certain entrepreneurs are going to suffer as a result. “Complete abolition of the taper removes a large incentive for entrepreneurs and challenges the ‘Dragon’s Den’ success of the UK,” he says.

The Federation of Small Businesses has also had a go at the Chancellor, labelling the entire report “bad news” for SMEs.

FSB policy chairman John Walker says the sector will “not be helped by increased business rates and a less generous capital gains scheme”.

The UK head of entrepreneurs and private companies at PricewaterhouseCoopers, Kevin Nicholson, reckons we might see a raft of businesses being sold before 6 April 2008 when the new tax rate applies to all gains on disposals.

"As with all changes to the tax regime, there will be significant winners and losers. The main losers would appear to be the private business owners that government has been seeking to encourage to grow in recent years," he tells us.

In other pre-budget news, Darling revealed that inflation will be on target at two per cent next year and the year after. Economic growth this year is expected to stand at three per cent, although it’s forecasted to fall to between two per cent and 2.5 percent in 2008.

The main rate of corporation tax will be cut by 2p to 28p next year and, if Darling is a man of his word, we’re going to get a simpler tax system.

This is what he had to say about the latter measure: “I am announcing three reviews proposing simplification to the tax system that will let three million self-employed people pay their tax and National Insurance contributions more easily, and 500,000 businesses reduce their paperwork by removing a separate payroll.

“Taken together with other measures I am proposing today, this will save British business up to £100m a year.”

Darling needs to deliver what he’s promised when it comes to our complicated tax system. It’s in dire need of simplification; as we all know, red tape strangles small business.

The capital gains tax changes don’t sound good. We can’t afford to put any more barriers in the way of would-be entrepreneurs. Ever the optimist, though, I can only hope that the dire predictions of Messrs Davies, Walker and Nicholson don’t come to fruition.

Reader, is my optimism misplaced? Do you think this is bad news for entrepreneurs? What’s your verdict?

Pre-budget report: hot or not?

Tags: tax system, capital gains tax, corporation tax, tax loopholes, ernst young, paul davies, john walker, pre budget report, alistair darling, private equity firms, pricewaterhousecoopers, federation of small businesses, kevin nicholson,