Don’t break the family businesses that built Britain, warns boss representing small firms

Neil Davy is chief executive of Family Business UK

Twelve months ago, the Government’s first Budget since returning to office did two things: it raised taxes by over £40billion and penalised Britain’s family businesses by changing the rules on inheritance tax.

This change, dubbed The Family Firm Tax, burdens privately held family businesses with a 20 per cent tax just at the point when the owner dies.

Only British family businesses will have to pay this. FTSE companies, Private Equity and foreign-owned firms escape this punitive tax. 

Singling out family firms is not only unfair, it puts them at an enormous disadvantage.

You do not have to look far to find evidence of what the Budget choices of the Government have achieved. Businesses have lost confidence. 

They are sitting on their hands. 

Growth is weak and the jobs market is the worst we have seen for years.

Findings from our research, Taxing Futures, which you can read about today, shows the Family Firm Tax could see more than 200,000 jobs lost and reduce economic activity by £15billion. 

Far from raising tax it is predicted to cost the Treasury £1.9billion over the course of this Parliament.

For a government elected on a promise of delivering growth you have to wonder why it has chosen to pursue a policy that actively undermines that ambition and the businesses that will deliver it?

But there is still time to change tack.

Family businesses are the rock on which our country and economy thrives. There are five million of them, and they have been building Britain for generations.

Many will be familiar high-street names. Others are less well-known. They are the brands that fill our shopping baskets, they build our roads and homes, run our airports, buy and sell our cars, look after us on our holidays, brew our beer and serve it with a smile.

Britain’s family businesses are here for the long-term, committed to this country and the 15million people they employ.

For decades they have been supported by a policy called Business Property Relief (BPR). 

It allows the assets of the business, things like buildings, equipment, machinery and stock, the things all businesses need to operate, to remain outside inheritance tax for a family shareholder’s estate.

Successive governments for 50 years have understood its importance to family firms, giving them confidence to invest and create jobs. 

They have understood that treating private business assets as personal wealth, and taxing them aggressively, puts businesses and livelihoods at risk.

Inheritance in a family business is not some gilt-edged privilege enjoyed by those who just happen to be born lucky and neither is BPR a policy loophole being exploited by these individuals. 

It is a policy that gives family business confidence to commit to long-term investment, growth and employment.

Over the last 18 months we have repeatedly called on the Government to pause this policy change, to listen to the realities facing family firms up and down the country and understand why BPR is so critical to their long-term success and the country’s economic prosperity.

We have repeatedly called on government to engage in a meaningful consultation. So far, it has ruled that out. 

By doing so, it is pursuing a policy that harms jobs, weakens growth and, as our research shows, will leave the country worse off.

Taking time to pause and reconsider the Family Firm Tax is the right thing to do. It would demonstrate that the Government is prepared to listen and back British family businesses. Next week’s Budget would be an ideal time to do it.