A significant disconnect has emerged between MPs and business leaders over which tax reforms are most important for boosting growth and confidence, according to new research by accountancy firm Price Bailey.
The findings reveal that while business owners are most concerned about taxes on business sales – particularly Capital Gains Tax and Business Asset Disposal Relief – MPs overwhelmingly focus on business property taxes, especially business rates.
When asked to select up to three tax areas in need of reform, over half (53%) of business leaders cited taxes on business sales as their top priority, followed by employment taxes such as National Insurance contributions, and then Corporation Tax.
In contrast, 54% of MPs said business rates should be the focus of reform, followed by business sales taxes (32%) and dividend taxes.
The research, conducted by YouGov, surveyed more than 700 business owners and board-level executives alongside a representative sample of 101 MPs. Price Bailey said the results expose a “gulf in understanding” between the private sector and policymakers when it comes to tax reform priorities.
Chand Chudasama, a Partner in Price Bailey’s Strategic Corporate Finance team, said: “Politicians and business leaders have starkly different priorities when it comes to tax. There is a tendency to assume that business leaders are more concerned about day-to-day trading taxes than one-off taxes, such as Capital Gains Tax. The opposite is true.”
He added: “Despite the increase in employer National Insurance contributions from April, business leaders are more concerned about the taxes on business sales, which were also hiked in the Autumn Statement. These taxes raise relatively little revenue, yet they have an outsized impact on entrepreneurship and new business formation.”
Interestingly, only a third of business leaders identified dividend taxes as a major concern. “In effect,” said Chudasama, “business owners are quite happy to earn less through dividends if it means they can enjoy a greater capital upside when they exit.”
The discrepancy may be partially explained by MPs’ focus on high street retail. Business rates – though they account for just 14% of the overall tax burden on UK businesses – are viewed by many MPs as outdated and unfair, disproportionately affecting bricks-and-mortar firms compared to online retailers.
“The Government had very little room for manoeuvre in the Autumn Statement,” Chudasama noted. “But this research shows it ended up increasing the taxes that are least favoured by business leaders – the very taxes most likely to dent business confidence and deter investment.”
The report suggests that the political aversion to raising taxes on so-called “working people”, alongside the perception that Capital Gains Tax largely affects the affluent, has pushed the Government into policy choices that clash with what the business community believes is needed for growth.
As the UK economy continues to face stagnation and productivity challenges, these findings may add pressure on policymakers to reconsider their assumptions about which tax levers best support growth – and which risk doing more harm than good.
