Pre-budget is bad news for business

The government's pre-budget announcement has revealed plans for additional investment in science and technology, alongside wide-ranging tax rises, with changes in the way companies and investors are taxed on the sale of assets likely to cost an additional £2 billion next year, as the government tries to clamp-down on private equity profiteering.

Plans to introduce a flat 18 per cent rate of tax on the sale of business assets from April 2008, replacing the current tiered system, will see the amount paid by business owners selling-up or cashing out of start-ups almost double, compared to the current 10 per cent rate charged on the sale of assets held for more than two years.

"The changes I propose to capital gains tax also, taken together with the tax loopholes that I am closing, will ensure that those working in private equity pay a fairer share" said Chancellor Alistair Darling.

"The capital gains tax regime here has continued to encourage investment and enterprise. I now propose reforms to make the system more straightforward and sustainable; to ensure it sets consistent incentives for investment and enterprise; and to ensure it remains internationally competitive," he added.

But many business investors are unhappy at the move, arguing that the tax changes, along with other revenue-raising measures will damage start-up investment and drive businesses out of the country.

William Berry, the founder of social media start-up Net121 Group and who made £12 million selling his first online start-up last year, said in an interview with the Daily Telegraph that he is considering moving overseas to avoid the penalising tax changes.

"I think it's devastating. I'm getting increasingly frustrated with doing business in this country. The cost is getting higher and higher and there's no reason why I can't be working out of Dubai" he said in the Telegraph interview, highlighting the business-friendly tax regime in the Middle East.

Small business groups are also unimpressed, highlighting the negative impact of planned infrastructure taxation on smaller businesses, harming their ability to invest.

"The Chancellor has raised the prospect of Supplementary Business Rates as part of the funding for the Cross Rail project for London," said Matt Hardman, campaigns manager for the Forum of Private Business. "This is the thin edge of the wedge, as the government looks to make smaller businesses pay yet further."

Also announced in the pre-budget was £400 million of funding for security technology spending, to further redevelop border control systems, such as biometrics, ID cards and surveillance hardware.

"Overall, I am allocating additional resources to the Home Office and Ministry of Justice that will now rise to £20 billion by 2010, as we guarantee neighbourhood policing in every community, build 9,500 extra prison places and finance over £400 million in technology to strengthen our border security," Darling said.

Investment in science and university research is set to rise to over £6 billion a year in three years time through a combination of government and private sector investment.

"Our ability to compete and succeed in the global age will depend on our competitiveness and continuing investment in the economy. Britain's future success will depend not just on investment in physical capital but also skills, innovation and intellectual property."