It is very difficult to prove that multinationals threatening to move abroad
to take advantage of lower headline tax rates is resulting in higher taxes for
small businesses in the UK. The government certainly wouldn’t admit it.
However, one fact should make the small business community very suspicious:
as the clamour from multinationals about the UK’s high corporate tax rates,
compared with other countries, has grown stronger in recent years, tax on small
businesses has been rising and tax on large companies has been falling.
The 2007 Budget saw a cut in the corporation tax rate for large companies
from 30% to 28%, while small firms saw their rate rise from 19% to 22% over
three years. The fiasco over CGT would at one point have forced small business
owners to pay almost double the amount of tax if they were selling their
business to pay for their retirement. This only added to small business owners’
legitimate sense of grievance.
Despite the fact that 99% of companies in the UK are small, despite the fact
that they account for more than half of the country’s gross domestic product and
despite the fact that they employ more than half of the private sector
workforce, the government seems willing to cave in to threats from the minority
of large companies that are able to pack up and move abroad.
In a sense the situation is perhaps inevitable; depressingly so. By their
very nature, members of the small business community are not equipped to pack up
and leave at the drop of a hat. Without the armies of lawyers, accountants and
tax advisers that large companies can call on to relocate their headquarters
outside the UK, small business owners and entrepreneurs have little option but
to grin and bear it.
But the government may yet come to regret its attitude to the employers and
wealth-creators of this country. There are 4.5 million small businesses in the
UK and there is outright anger over corporation tax increases for small firms
and the CGT episode is turning rapidly into entrenched resentment. Small
business owners are, after all, voters too.
Simon Briault is a spokesman for the Federation of Small Businesses
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