Shadow Business Secretary John Denham MP has told the CIOT that Labour is looking at ways of using the tax system to greater reward the holding of long-term investment by businesses.
At an economic briefing held yesterday as part of the Labour Conference, George Crozier, CIOT External Relations Manager, asked Mr Denham whether media reports around Ed Miliband’s speech the previous day were accurate. These stated that Labour proposed to tax businesses differently according to how they make their money with, for example, asset strippers facing higher tax rates. If this was the case, could he explain how they proposed to do this?
In his speech, Mr Miliband had drawn a distinction between what he called ‘producers’ and ‘predators’. As an example of the latter he highlighted what a private equity firm did to the Southern Cross care homes, which he described as “stripping assets for a quick buck and treating tens of thousands of elderly people like commodities to be bought and sold”. He said government should no longer be neutral in the battle between producers and predators and should tax and regulate them differently, as well as treating them differently for government procurement purposes.
Responding to the CIOT’s questions, John Denham responded that some of the media coverage had been erroneous, in particular the suggestion that government would be going round ‘after the event’ drawing up lists of good and bad companies. He said that even the combined wisdom of all the CIOT’s members could not design a tax system to do this.
But as an example of what Labour wanted to do he said the tax regime should be changed to reward long-term holding of capital more. The Government should set rewards at the start of the process to reward the holding of long-term investments.
While further details have not been provided, this suggests Labour may be looking at reforms to areas such as entrepreneurs’ relief (ER), and the substantial shareholdings exemption (SSE), which allows a company to buy and sell shareholdings in another company at a profit without paying tax on that profit. The current qualifying period for both ER and the SSE is 12 months. Potentially this could be increased or some kind of taper introduced to reward the holding of shares by individuals or companies for a longer period.
Ed Miliband’s speech can be read here. The relevant passage is about two thirds of the way through.
CIOT External Relations Manager
Thursday 29 September 2011
NB. George will be producing short reports from all three of the main UK party conferences. The Lib Dem report can be read here. The Labour report will be posted shortly and the Conservative report in about a week’s time.