The Chancellor has to find a lot of fertiliser to regrow the money tree that’s been stripped bare by the coronavirus crisis.
As a result, I don’t expect we’ll see many giveaways in Rishi Sunak’s Budget speech on 3 March. Instead, we’ll have to start to brace ourselves for some belt tightening and increased tax bills if the public purse is going to recoup some of what is believed to be somewhere in the realms of three to four hundred billion quid.
That said, the mood music coming out of Westminster is that wholesale tax rises aren’t on the cards. It has even been suggested, in one crumb of positivity for businesses, that the Chancellor is considering cutting National Insurance Contributions employers pay for their staff.
This is aimed at stimulating employment as it has long been said that this ‘jobs tax’ puts firms off hiring.
Anything that encourages job creation should be welcomed, especially as when the furlough scheme comes to an end and a large part of the zombie workforce currently languishing at home on 80 percent government-funded wages, find themselves having to join the dole queue.
However, this all seems in stark contrast to one tax rise rumour that just won’t go away, which is the plan to raise Capital Gains Tax, which will immediately wipe out any benefit from cutting employers NICs. Quite simply, increasing CGT will hit investment in businesses and, in turn, curb new employment.
There is a misconception that entrepreneurs are only in this game to make themselves rich, but making good money is often a welcome biproduct generated alongside the other reasons why they run their own business.
Most start a business to earn a crust and provide bread and shoes for their family, and yes, there’s no denying there are some who become entrepreneurs with the sole aim of living a millionaire’s lifestyle.
In my experience, and from the many business owners I have met over the years, the thrill of success, which includes building a business, generating employment and opportunities for people to develop their careers, is often what drives entrepreneurs forward.
It also often leads to them using some of the proceeds to start new businesses, which generates even more jobs.
Slapping a few percentage points on Capital Gains Tax levels, will snuff out some of that entrepreneurial endeavour, which is not what the economy needs right now.
Don’t get me wrong, I’m not saying that everyone shouldn’t pay their fair share, particularly the small number of very high earners who enjoy the loopholes to reduce their contributions to the Treasury.
But when it comes to most SMEs, an increase to Capital Gains Tax isn’t about cutting the amount entrepreneurs take home when they sell their business, it’s about reducing the resources they have to invest in start-up and scale-up businesses.
With SMEs making up 99 percent of all the businesses in the UK we need to expand not reduce the opportunities to add to the six million already in existence.
I know that the Chancellor has some tough sums ahead of him, but this plumber’s maths says more businesses equals more jobs and, as a result, more employees paying tax.
Stem the increase in UK SMEs will prevent the Treasury from having a larger pool in which to fish for the funds it needs while stifling an entrepreneur-led economic recovery.