With the Budget later today, there are a few key areas which I think need to be addressed by George Osborne and the Coalition:
Scrapping the 50p tax rate
There has been a lot of talk about the possibility of the 50p tax rate being scrapped, due to a combination of poor tax yields and the risk of pushing high-earners away from the UK. In my view, this would be a very sensible course of action, especially as far as entrepreneurs are concerned.
Firstly, an entrepreneur has to pay tax on business income, National Insurance and so on. Secondly, there’s income tax on the salary they take for themselves and, thirdly, there is Capital Gains Tax on top of this. That’s three layers of taxation on one of the most powerful drivers of the economy.
I have never been shown any evidence that increasing income tax leads to increasing yields. It serves as a disincentive to people working hard and also encourages more tax evasion. In keeping the 50p income tax or introducing a “mansion” or “tycoon” tax the Government will have missed a golden opportunity to show that the UK is open for business.
I’ve long been arguing for more support for entrepreneurs and those who invest in them from the government, and while some progress has been made, there is still much more that could be done.
Entrepreneur’s relief should be unlimited – why should they be punished for being really successful? I think capital gains for early stage investors should be reduced in a similar way.
I also think that all early stage investment (with agreed criteria) should be written off against tax. This would act as a huge incentive for people who have made money to reinvest that money into further growth.
This would go a very long way to encouraging successful entrepreneurs to stay involved in the industry, recycling their money, contacts and experience to help build an even more prosperous generation of businesses. This is a model that has been much in evidence in Silicon Valley and it has reaped dividends.
Tech City – more than just marketing noise?
I’m concerned that the government’s support for Tech City (or Silicon Roundabout – depending on which you prefer) has been rather superficial.
This makes you question the government’s credibility and also its ability to really make things happen. The government either needs to just get out of the way and let things happen and stop trying to make out that they are driving it. Or they need to start driving it! For me, this would involve meaningful support and benefits in the areas of infrastructure investment and tax advantages for businesses in the area. At the moment it all feels like too much marketing and not enough substance.
The government has to find a way for the banks to start lending more to small businesses. The government bailed out the banks in the financial crisis and there has to be some pay back in terms of better support for businesses.
I understand that banks need to de-leverage and they shouldn’t be encouraged to take on bad loans. But surely they can find a way to make more loans available to credible small businesses that simply need more capital to grow.
Small businesses are the engine of the economy and banks need to be pressured into providing more fuel. The government has to take more responsibility for this.
Jos White is co-founder of Notion Capital and MessageLabs.
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