Small businesses aren’t scared of tax reform, they’re sick of a system rigged for everyone but them

Just a few months ago, Starmer promised to “back small businesses all the way”. But with rumours swirling around the upcoming Budget - and tax rises almost guaranteed - doubts are brewing about his small business sympathies.

Last year’s employer tax rise is still fresh in memories of business leaders will further tax rises inflame mistrust among small businesses at the heart of our communities?

Our new research at Demos - based on a representative survey of 500 small and medium-sized enterprises (SMEs) - tells a different story. If making the system fairer, Budget tax rises could actually win small businesses’ support and confidence, rather than harming trust.

SMEs widely see the various tax advantages benefitting certain businesses as unjust, and back higher taxes that would level the playing field.

Just last weekend, we saw reports of 150 prominent business figures warning the Chancellor against a so-called exit tax - a settling-up charge for people moving abroad with their investments. But that’s a poor reflection of Britain's smaller business community as a whole.

Many small business owners are not able to just shut up shop and move abroad to avoid taxes, and feel it’s unfair that others can.

That’s why over half (52%) of SMEs say an exit tax would make the system fairer, while just one in six (18%) disagree.

Britain’s SMEs also back the rationale for other tax rises that are reportedly under the Treasury microscope. They tend to think it’s unfair that landlords do not have to pay national insurance contributions (NICs) or that partnership businesses don’t pay employer NICs for partners.

Good news for SMEs then! The government is set to ensure limited liability partnerships pay their fair share and is considering doing the same for landlords.

A regular hot topic for businesses is Capital Gains Tax (CGT). The current system is broken. It allows the well-advised to game the system and pay lower rates, and makes businesses pay tax even on inflationary gains. Fixing these problems could raise huge sums (over £10 billion).

And actually, SMEs back reform. Almost half (46%) say increasing CGT while introducing a new investment allowance would make the system fairer, while just one in seven (15%) agree.

Fearmongering about investment drying up doesn’t hold either. When asked about last year’s CGT rise, just 7% of SMEs say they cut investment as a result, while 18% actually invested more.

So yes, taxes have to rise. But they don’t have to rise unfairly. At Demos we outline a package of reforms to ensure landlords, partnerships, investors, and owners of high value property pay their fair share, while fixing absurdities in the tax system.

Together, those changes would raise £17.9 billion a year - and make a fairer system for the SMEs that brighten Britain’s high streets and power Britain’s economy.

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Dan Goss is a Lead Researcher specialising in economic policy at Demos, the UK's leading cross party think tank.

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