Dated: 16 March 2011

In its 2011 Budget Representations the Institute of Directors calls for four changes to the tax system. These four proposals are designed to improve substantially the competitiveness of the economy by killing the growing perception that the UK is a high tax economy. The proposals involve either little or no cost over the course of the Spending Review, or more significant cost beyond 2014-15. Even then the cost is easily manageable, providing there is restraint in the growth of public spending.

To read the IoD’s Budget Representations in full, click here: Budget Submission 2011

Commenting on the IoD’s tax proposals, Miles Templeman, Director-General of the IoD, said:

“Since there is little money in the Treasury’s coffers many people are assuming that there’s not much George Osborne can do to kick-start economic activity and strengthen the recovery in the Budget. They couldn’t be more wrong. Now is the time for the Government to signal in the strongest possible terms its determination to make the UK one of the most tax competitive countries in the world.

“The Chancellor can send this signal by announcing in the Budget that the 50 per cent income tax rate will be abolished by 2014-15, and Corporation Tax will be reduced to 15 per cent by 2020. This is one of the most dynamic areas of the tax system where deep cuts in rates could transform business behaviour and raise more revenue in the long term.

“By making these statements on Budget Day the Government will be sending a clear message that this country is open for business. This has the potential to boost business confidence and increase inward investment into the UK. We can’t afford to make all these tax changes today, but signalling tax cuts for tomorrow could still boost business confidence.”

The 4 key changes are:

• A commitment to abolishing the 50 per cent top rate of Income Tax by 2014-15 – no fiscal cost prior to 2014-15, with the potential to be revenue positive thereafter. Coalition politics and the fiscal squeeze rule out early abolition but a clear statement about future abolition, by the Chancellor in the Budget, could significantly boost business confidence.

• Removing the withdrawal of the personal allowance on earnings above £100,000. Annual cost of around £1.5 billion but potentially much less, given the lost output arising from the 62 per cent marginal rate on affected income at present. The median salary for IoD members is around £75,000 and so the withdrawal of the personal allowance directly impacts on their aspirations for future income.

• Extending the reduction of Corporation Tax to 15 per cent by 2020. We want to aim for the UK having the lowest corporate tax rate in the world by 2020. On current estimates reducing the rate from 24 to 15 per cent would cost around £9 billion per annum. This would be funded by continued restraint in public spending growth, simplification and removal of certain allowances, together with the dynamic impact on GDP growth from greater business investment in the UK. Combined with the personal tax changes described above, it would send out a very strong message that Britain is open for business.

• Introducing an exemption from future Capital Gains Tax for entrepreneurial investments. If a new company starts in business between now and 5th April 2012 then the people who subscribe for shares in it within that period would be exempt from Capital Gains Tax when they sold those shares, whenever they sold them. This would encourage the injection of fresh equity capital into businesses (only shares subscribed for would qualify, not shares bought from existing shareholders).