Tax cuts needed to boost business

The Budget must contain the promise of tax cuts if the UK is to escape the perception that it is a high tax economy.

That was the eve-of-Budget message from the Institute of Directors (IoD).

The business organisation argued that the Budget must set out four fundamental changes to the tax system.

It claimed that the proposals involve either little or no cost over the course of the current spending review or more significant cost beyond 2014-15.

The IoD is pushing for an abolition of the top 50 per cent income tax rate, which covers earnings over £150,000 a year, by 2015. While the current economic situation means that dropping the rate immediately would be difficult, signaling its eventual demise would raise business confidence, the IoD said.

Also on the personal tax front, the IoD called for an end to the withdrawal of the personal tax allowance on earnings above £100,000.

To encourage business, the Chancellor should commit the Government to reducing corporation tax to 15 per cent by 2020. This would give the UK the lowest corporate tax rate in the world.

Cutting the corporation tax rate from 24 per cent (to which it is due to fall) to 15 per cent would cost around £9 billion per annum. However, the IoD said, this would be funded by continued restraint in public spending growth and the simplification of certain allowances, together with the impact on GDP growth from greater business investment in the UK.

The fourth area identified by the IoD is an exemption from future capital gains tax for entrepreneurial investments.

Under the IoD proposals, anyone subscribing for shares in a new company starting between now and 5 April 2012 would be exempt from capital gains tax when they sell those shares. This, the IoD added, would encourage the injection of fresh equity capital into businesses.

Miles Templeman, the IoD' s director-general, commented: "Since there is little money in the Treasury's coffers many people are assuming that there's not much George Osborne can do to kick-start economic activity and strengthen the recovery in the Budget. They couldn't be more wrong. Now is the time for the Government to signal in the strongest possible terms its determination to make the UK one of the most tax competitive countries in the world.

"The Chancellor can send this signal by announcing in the Budget that the 50 per cent income tax rate will be abolished by 2014-15, and corporation tax will be reduced to 15 per cent by 2020. This is one of the most dynamic areas of the tax system where deep cuts in rates could transform business behaviour and raise more revenue in the long term.

"This has the potential to boost business confidence and increase inward investment into the UK. We can't afford to make all these tax changes today, but signalling tax cuts for tomorrow could still boost business confidence."