Business leaders have urged chancellor Gordon Brown not to hit small firms with tax rises in the upcoming Budget to make up the ‘black hole’ in public finances.
In submissions to the chancellor ahead of the 17 March announcement, lobby groups stressed that any further rises in taxation or regulation will stifle small firms and damage the UK’s competitiveness.
The Confederation of British Industry (CBI) acknowledged that Brown had to make up a deficit in the public purse, but said that the chancellor should end the “relentless and damaging” rises in company tax bills and reduce the burden on UK businesses.
The CBI said that unless Brown cuts employers’ National Insurance or corporation tax, he will cause “immense damage” to businesses in coming years.
The lobby group stressed there should be no rises in local business rates, environmental taxes or transport charges.
Digby Jones, director general of the CBI, said that the government has gone some way to promote enterprise in the UK but it should sit up and take notice when businesses start saying the UK is declining as an investment location.
“Trying to shoot the messenger will not change what’s happening on the business frontline.
“In recent weeks there have been encouraging signs that the Treasury is getting our message. Now we need a real commitment to a simplified and low-tax business environment with a plan to roll back the business burden over the medium term.
“Successive Budget speeches show the Treasury understands the importance of enterprise. But Mr Brown will not win business support by giving with one hand and taking with the other.
“Firms will be utterly disillusioned if there are more tax rises, whether by stealth or the local government back door,” he said.
The Federation of Small Businesses (FSB) said it was concerned that Brown will announce a series of tax rises in the Budget by making small firms pay National Insurance on dividends, ending tax breaks on IT equipment and increasing business rates.
The FSB said that it was also worried that the chancellor will force employers to collect tax from employees on income earned elsewhere and tighten up the inspection regime for legitimate firms while ignoring those trading illegally.
Neil Hamper, tax chairman at the FSB, said that the chancellor looks set to change the way he taxes small limited companies.
“We have not been given any straight answers but Gordon Brown’s options include treating dividends as salary, charging National Insurance on dividends, or imposing an investment income surcharge.
“The FSB has consistently warned that the government was storing up trouble for itself by creating a tax system where the self-employed can pay 32 times more tax than their incorporated counterparts.
“As a result many sole traders and partnerships have incorporated and the treasury has been left out of pocket.
“It’s unfair of the chancellor to now retaliate when the situation was entirely predictable,” he said.
