Business chief slams tax reform

The CGT proposals would bring injustice, Mr Lambert says.

UK entrepreneurs are considering selling firms because of uncertainty over changes to capital gains tax (CGT), a business leader has said.

Richard Lambert, director-general of the employers' organisation, the CBI, told the BBC that industry was in a "state of complete confusion".

He said the chaos had severely damaged the government's reputation.

Chancellor Alistair Darling announced CGT changes in October but has delayed revealing details of the new rules.

BBC business editor Robert Peston described Mr Lambert's attack on the government as "probably the most savage" since he joined the CBI in 2006.

'Injustice'

At the CBI conference last November, the chancellor said he would announce revised proposals within three weeks.

But so far there has been no statement from the Treasury on the subject.

It means that entrepreneurs are unsure whether to sell assets now, to take advantage of the current 10% rate, or wait and risk paying more tax later in the year.

People who've been at the CBI longer that I have say they can't remember anything which made people quite so annoyed and angry Richard Lambert, CBI Q&A: CGT proposals

Mr Lambert told BBC Radio 4's Today programme that companies and entrepreneurs were finding it impossible to make rational decisions on their investments and disposals.

He said: "If you have been building up a business over donkeys years and you suddenly face the prospect of a higher tax bill, you have to think now about whether you're going to get out of it. That's what people are doing."

"They are beginning to take decisions that have nothing to do with business or economic common sense. They are doing it because they don't know what their tax liabilities are going to be."

He added that the changes would bring a lot of "injustice" to many people, and that there needed to be a greater period of adjustment.

Rising anger

Capital Gains Tax is levied on profits made from the sale of assets such as shares, investments, valuable antiques or second properties.

Under the present system, some investors can pay as little as 10% CGT on the profit from the sale of assets as long as they have held the assets for at least two years.

As it stands, the general effect of the change will be to raise substantially the levels of CGT paid by people selling businesses or shares after 5 April 2008, but to cut CGT for those selling second properties.

Mr Lambert said that it was "completely and utterly crackers" that a buy-to-let investor who bought and then sold a property over a short period would have the same tax level as somebody who had built a business up over 20 years.

"People who've been at the CBI longer that I have say they can't remember anything which made people quite so annoyed and angry as this decision," Mr Lambert said.

"And in some good senses it's regarded by business as a touchstone for the government approach to business policy."

'Cheesed off'

Mr Lambert added that the 10% CGT rate, introduced by the then Chancellor Gordon Brown in 1998 had succeeded in encouraging entrepreneurship.

But he said it was expected that this would have been sustained over time and that many people were "mightily cheesed off" with the change.

The government has admitted the CGT changes would be controversial but said the proposed new tax regime would be simpler and fairer.

"Maintaining Britain as a good place to do business means ensuring we have a tax regime that is competitive, fair and simple," Mr Darling has said.