Many of the leading company owners hand-picked to advise the Chancellor on new business policy were in open revolt last night, claiming the move seriously undermined Labour’s claims to be a pro-business party and threatened future jobs and investment.

One adviser, Lord Bilimoria, the founder of Cobra Beer and a Labour supporter, said the 10pc rate of CGT, now being scrapped, was one of the “best moves” the Government had made to establish its pro-business credentials and was disappointed by the policy reversal especially as it followed Gordon Brown’s decision in April to increase by 16pc the rate of corporation tax paid by small companies.

“Investment in small businesses and entrepreneurship has been penalised. It sends all the wrong signals for Government support of small business,” he said.

The CBI also weighed in, with officials making it clear to the Treasury the strength of opposition among its 200,000-strong membership to the shock decision.

John Cridland, its deputy director general, said: “The Chancellor’s move on capital gains tax will have an impact far beyond the important private equity sector. It will discourage investment right across the economy and entrepreneurs who have toiled to build up businesses from scratch will be particularly hard hit. The Treasury needs to think very carefully about the signal this decision sends out on enterprise.”

Five of Mr Darling’s key enterprise advisers, including Lord Bilimoria, said they were appalled by the decision. Jonathan Straight, chief executive of Leeds-based Straight, said:

“This is a major blow if you spent years building a business and hope maybe to sell your share one day. The really poisonous part of this is the effect of the new tax rules on those with Approved Share Options in a quoted company. These people, and there are a lot of them, are not rich and are not major players. They are everyday people who do an exceptional job for the companies they work for.

“They have to wait three years to exercise their options and previously they paid an effective rate of 10pc tax on their gains. The rate is now 18pc – this is very unfair as people’s plans for their coming nest egg will have to change. This is a demotivating factor for anyone with such share options.”

Dylan Thwaites, chief executive and founder of Latitude, said he would now reconsider his investment plans and would look more favourably at approaches from overseas governments to relocate his head office from Warrington where he employs 70 people.

“We have been approached by Ireland to move there and they will guarantee the rate of corporation tax at 10pc until 2021. Our future start-ups and investments are likely to be outside the UK in a tax regime we can trust,” he said.

Stephen Timms, the minister for competitiveness at the Department for Business and Enterprise, defended the decision to scrap the relief on business assets in favour of a flat rate of 18pc from next April. “There’s a real simplification being introduced here and it’s a positive,” he said. “It gives us a framework for entrepreneurial investment and it is good by international comparison. Remember that in 1997 everybody was paying 40pc.”

But George Osborne, the shadow Chancellor, said the new CGT rate was higher than France (16pc), Italy (12.5pc) and the US (15pc). “We have become used to Britain’s tax system become steadily less competitive under Labour, but this latest tax rise, coming at a time of economic uncertainty, may well have a detrimental impact on the British economy,” he said.

Richard Tyler, 12th October 2007, Telegraph.co.uk

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