Inheritance tax raid on family firms is ‘anti-growth’ and MUST be reversed, says boss of business lobby group

Neil Davy is chief executive of Family Business UK

This week, family businesses have been celebrating. Not the Budget – there wasn’t a huge amount in that for them to cheer.

Instead, we have spent Family Business Week applauding the brilliance of family firms right across the country, spanning every sector of the economy and every size and age of business.

Neil Davy says family firms are ‘demoralised’

The fact they’re celebrating at all is astonishing after last year’s Budget and the family business and farm tax. I’ve lost count of how many times family business leaders have told me how demoralised they feel with red tape around every corner and inheritance tax threatening to undermine the future of their business.

We’ve spent the last 18 months warning the Government of the damage this tax will do to the economy, forcing companies to cut investment and hiring.

Our research, which the Government continues to dismiss, shows 55 per cent of family businesses have paused or cancelled planned investments in the last year in response to the cap on Business and Agricultural Property Relief, and 44 per cent say they will do so before the end of this Parliament.

It is little surprise then that the OBR is forecasting business investment will dwindle up to the end of this Parliament, with growth averaging just 0.75 per cent a year.

As for this week’s Budget, we had hoped the Chancellor would announce amendments that alleviate the damage being done. She did not.

But there was one positive move. The Chancellor aligned the family business and farm tax with the rules on inheritance that apply to the rest of us by allowing spouses to transfer their allowance.

It is a minor tweak, not the substantive policy change or complete reversal that’s needed. And it is most definitely not the tax break that some have chosen to label it. But it will give some smaller family businesses and farms a little peace of mind.

There are five million family businesses in Britain employing 15 million people

By failing to consult and materially amend the policy, this Government will be remembered as the first in 50 years to abandon a policy designed to support the model of family business ownership.

It has chosen to single out millions of UK family firms for a tax that none of their foreign-owned, private equity-backed or FTSE-listed competitors will have to pay, despite the clear benefits family businesses bring to the UK economy.

For the last 13 months the Government has said this is fair. But what is fair about deliberately disadvantaging great British family businesses in favour of their competitors?

By choosing not to consult the Government has failed to understand or acknowledge the impact of this change and ignored the projected £15billion hit to the economy, the 200,000 jobs that could be lost and the £1.9billion reduction in tax receipts the Treasury will receive before the next general election.

This country needs growth. But the family business and farm tax is anti-growth and a policy mistake. The fact government made a minor tweak to it tells us as much. But correcting this tiny wrong does not make it right.

The right thing for government to do now – in the national interest – is to stop this policy change before it comes into effect in April and stop the damage it is doing by forcing family business owners to cancel investment, stop hiring and ride out the storm.

There is still time for government to do the right thing, to work with us to find a better solution that gives Britain’s family business owners the confidence to do what they do best – invest in the long-term future of their business and their employees, and grow Britain’s economy, as they have done for generations.

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