Killing off entrepreneurial spirit

CHANCELLOR Gordon Brown's normally-deft political touch may have let him down in the run-up to this week's Budget. In leaking to the Press as part of the traditional pre-Budget curtain-raiser that he intended to wage further war on tax avoidance, he may have badly misjudged the mood of those who create the wealth in this country.

One of the surprises in talking to businessmen and entrepreneurs is how strongly the resentment against taxation runs. It is not the absolute level of income tax that is the problem, still less the level of corporation tax.

Indeed, the problem is not any specific impost. Rather it is a feeling that the burden of tax has increased significantly in recent years, whether or not people can put a finger on any specific tax rise, and this has coincided with a more aggressive attitude by the Inland Revenue, which has soured relations and fuelled the sense of resentment.

This is not simply a business thing. Huge swathes of the population saw their monthly take-home pay reduced last year by the increase in National Insurance and did not really understand why. But on the business front there have been three incidents in three weeks which sound the alert that the Chancellor has been squeezing too hard.

The first was an entrepreneur who in the past five years has created an amazingly successful business, financed by American private equity, where he and his backers have agreed to forgo current profits and use the money instead to finance further expansion.

The attitude of the Inland Revenue, however, is that his business has to pay £1m in tax because some units in the group are profitable.

This prompted the entrepreneur to remark that he had to work extremely hard and give up a lot of equity to raise the millions from private-backers to get the business started. It was galling to see the capital he had fought so hard to get being handed over the Revenue when his business was still not profitable.

The second was rather different. The businessman runs a successful company while his wife is a partner in a leading City firm. But they are seriously thinking of leaving these shores to live and work from abroad as soon as their children are old enough to go to boarding school.

The third, another entrepreneur, is the only one of the three who is seriously Conservative and sees even Ken Livingstone's London congestion charge as just another tax on top of all the others. Her solution is probably to sell up and not bother fighting to run a business any more.

The point of these three stories in Budget week is not to suggest that the business people quoted will necessarily follow through on what they threaten round a lunch or dinner table. Rather it is to point out how business morale is being sapped by Labour's tax policies - not so much in the quantum of what is taken but in the way it is done.

It is a significant factor in undermining trust between Government and the governed and counts probably for more than the oft-cited burden of regulation - and robs Labour of much of the credit for keeping the economy on an even keel throughout the world slowdown of the past few years.

That ought to be a serious concern to the Government because, as it knows better than most, when perception and reality become blurred perception is what wins out.

Deserving case

CONTINUING pressure for some sort of Government-backed compensation for Equitable Life policyholders does seem to be a misplaced use of energy. There is no doubt that policyholders feel they have been badly let down, but let us be realistic about the nature of their financial pain.

They are certainly going to collect less than they thought; in many cases they will get less than was promised. But for most this means they will do less well than they had hoped, not that they have suffered a crippling loss.

Contrast their plight with the far more serious financial injury done to members of occupational pension schemes where the failure of an employer has left employees with virtually nothing to show for a lifetime of contributions - too late for them to do anything about it.

These people have been far more ill-served than the bulk of the Equitable victims because they had no choice as to which pension scheme they joined, little scope to influence the investment policy of the fund, and no redress against an employer who failed to pay in the necessary level of contribution to keep the fund solvent.

A growing number of people are suffering in this way - and if anyone is going to get Government-sponsored compensation, they should be first in the queue.

Smoothly done

IT is amazing what can be achieved when people keep personalities out of business. Caledonia, the investment trust born to manage and enhance the wealth of the Cayzer shipping family, today announced a deal to buy out the group of family dissidents that has disrupted the smooth running of the company for the past few years.

The deal is elaborately structured to minimise tax. But behind the talk of special dividends, the bottom line is that those who want to get out can do so at an 18% discount to Caledonia's asset value. That is not just the family but also fidgety institutions such as Hermes, M&G and anyone else.

Given the elegance of the arrangement, one is left feeling that this could have been done some time ago if personal antagonisms had not come to the fore - although, in fairness, it is probably the rise in markets over the past 12 months that has made the absolute numbers attractive to the dissidents.

Be that as it may, this solves their problem, gives anyone else who wants to exit the opportunity and - because the assented shares will be cancelled - results in an increase in the Caledonia net asset value. So, as the corporate governance storms blow out, Caledonia will continue serenely on the same successful course it has followed for many years.

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