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Darling urged to address “chaos” created by PBR tax changes

Chancellor Alistair Darling has faced a torrent of criticism since last Tuesday’s pre-Budget report with warnings his capital gains tax changes will severely damage small business and the life assurance industry.

The ABI has called an urgent meeting with Treasury officials this Tuesday to protest against the CGT changes which tax experts warn could see the onshore and offshore insurance bond market shrink considerably.

Technical Connection director John Woolley told Money Marketing last week the removal of both taper and indexation relief and introduction of a 18 per cent flat rate of CGT means in many cases clients will be better off in a more tax efficient investment such as an Oeic or unit trust.

Hargreaves Lansdown announced on Friday it was reviewing all advised bond sales made over the last two months to check their suitability in the light of Darling’s dramatic changes.

Head of financial practitioners Danny Cox says the PBR has “thrown financial planning into chaos” with the changes set to shrink the onshore and offshore bond market massively.

“The insurers must be very worried. The potential impact of this is huge,” he says.

Meanwhile the IMA, whose members are rather better positioned than others if the changes take place, has welcomed the CGT move suggesting it is good news for smaller savers.

But ABI members are not the only ones with reason to be concerned over the Chancellor’s plans.

The British Chambers of Commerce, Confederation of British Industry, Federation of Small Businesses and Institute of Directors have sent a joint letter to Darling warning him the changes will seriously damage the UK’s entrepreneurial culture.

There is also worry the changes could hit adviser firms who have been using the rules on business asset taper relief to help grow their businesses.

The Conservatives have been quick to attack Darling’s proposals with Shadow Chancellor George Osborne saying they will have a “huge long-term impact on business and enterprise in Britain”.

Writing in The Sunday Times, Osborne said the abolition of indexation means long-term investors are penalised while short term investors are rewarded “completely contradicting the framework for stability and investment that Britain needs”.

Shadow Business Enterprise and Regulatory Reform Secretary Alan Duncan has also been quick to stick in the boot saying the PBR changes have created a “total mess”.

Duncan says: “Just when a changing economy needs more entrepreneur’s the Government’s decision amounts to an illogical attack on enterprise.

“We will be working with business organisations across the country to put pressure on the Government to change their mind.”

This is not the first time damage to the industry caused by Budget and PBR tinkering have allowed the Tories to score easy hits against the Government- pension term assurance, trust rules and Sipps to name a few- and Osborne and his team will be piling on the pressure at a vulnerable time for the Government.

Elsewhere, the Treasury select committee will continue its investigation into the Northern Rock debacle taking in evidence from the lender’s chief executive Andrew Applegarth, accompanied by chairman Matt Ridley and non-executive directors Sir Ian Gibson and Sir Derek Wanless, who recently completed another report into the National Health Service for the Government.

TSC chairman John McFall has also written to the FSA in the aftermath of last week’s mauling of the regulator by the committee to clarify a number of issues.

The letter asks for communications that took place between the FSA and Northern Rock’s auditors in the last two years and the conclusions of these communications, the regulatory relationship between the FSA and Northern Rock prior to August 2007 and further information relating to the suggestion the FSA briefed against the Bank of England.

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