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Corporation tax and CGT ‘should be abolished for SMEs’

Corporation tax and capital gains tax should be abolished for businesses with fewer than 50 employees, according to advertising magnate Lord Saatchi.

In a report for the Centre for Policy Studies he claims that the move would generate growth and help speed up the reduction of the deficit.

Lord Saatchi’s report observes that 90% of UK businesses have fewer than 50 employees, with the average firm having just five staff members.

Removing corporation tax for these businesses and capital gains tax for their investors would, he argues, increase GDP up to 3.1% inside five years, compared to official forecasts of a 2.4% increase. In addition, public sector net borrowing would drop by £2.8bn in 2018/19, compared to the Office for Budget Responsibility's prediction of a £1.1bn fall.

Around £43.8bn was raised through corporation tax in 2011/12, of which small companies on the small profits rate contributed just £8bn. Lord Saatchi expects the policy to initially cost the Treasury around £10.5bn in lower tax receipts, but he argues that the increased capital retained by small businesses would enable SMEs to compete more effectively with larger businesses.

Lord Saatchi said: "This policy is designed to empower and liberate Britons, crushed by big corporations on the one hand and by the state on the other. I want people to be captains of their own ships and have more freedom.

"The answer is not more regulation but to increase competition, to challenge 'cartel capitalism' and to change the culture of Britain."