Tax Hike Leaks Frustrate City Bosses Ahead Of UK Budget
Hunt is said to be weighing up a hike in the dividend taxation rate as well as reducing the tax-free allowance.
(Bloomberg) -- Business leaders have become frustrated by the leaks surrounding the UK government’s delayed budget, including reports that Chancellor of the Exchequer Jeremy Hunt could increase taxes on dividends and capital gains.
Hunt is said to be weighing up a hike in the dividend taxation rate as well as reducing the tax-free allowance. Hunt, who will deliver an economic statement on Nov. 17, is also considering cuts to capital gains tax allowances.
The potential measures are part of a bid to plug a £50 billion ($56.4 billion) black hole in the public finances.
However, news of the policies under consideration have raised fears in the City of London that investments in cash-hungry start-ups could be paused ahead of the budget.
Hugh Osmond, a serial entrepreneur and former chief executive of Pizza Express and Punch Taverns, warned any change to the capital gains deferral through the government’s Enterprise Investment Scheme could stunt new investments. “Every day it’s a new hare they set running,” Osmond said by phone.
“Obviously, hundreds of thousands of investors, entrepreneurs will have embedded capital gains in things. And now they’re all wondering if they need to do anything about that in the next 13 days -– take the gain now as opposed to later.”
Read More: What to Expect in UK Chancellor Hunt’s Plan to Fix Fiscal Hole
Osmond complained about the series of leaks coming out of Westminster. “This idea of trailing potential measures, pre the budget, which is obviously an intentional strategy, is just kind of lazy,” he said. “And laden with unintended consequences.”
The government has said that no option is off the table as it tries to shore up the public finances. Other potential measures including a windfall tax on oil and gas firms, along with cuts to government department budgets.
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Simon French, chief economist at Panmure Gordon, said his clients are concerned.
“I will get incoming questions over the next 13 days on every story to do with capital gains, tax changes, dividend tax changes,” said French, via phone. “The problem is, I can’t calibrate the likelihood of that happening, because I have no inside knowledge.”
He said the leaks threatened to “freeze up” any remaining transactions. “On the business front, if you’re looking at disposals, equity financing, in terms of dividend tax, the whole thing is just to hit the pause button for 13 days.”
Prime Minister Rishi Sunak is said to have saved further economic pain by delaying the budget, with Torsten Bell, chief executive of the Resolution Foundation, suggesting that holding off for two-and-a-half weeks had saved as much as £15 billion. The delay allows the Office for Budget Responsibility to include a drop in market interest rates since Liz Truss, the former prime minister, was forced into a U-turn on her mini budget and ultimately out of office.
Read More: Bailey Says UK Has Work to Do to Fix Damage From Truss Tax Plans
For businesses, however, the mixed messages have simply added to the uncertainty. Phil Urban, the chief executive of FTSE 250 pub group Mitchells & Butlers, said: “All of these things make it very difficult to do things with certainty and confidence that you would have done three years ago.
“All of us are not just planning what we’re doing with our own businesses, but also talking to our lenders and fund managers and banks. For them to be confident in us, they too need certainty.”
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