The British Venture Capital Association (BVCA), the UK venture capital and private equity body, has presented a list of tax proposals to Gordon Brown, the UK Chancellor of the Exchequer, ahead of his pre-budget statement for 2003.
UK private equity investors are concerned that higher tax burdens, namely potential rises in corporate tax rates and national insurance contributions, could hinder small business. The BVCA believes that the proposals will help sustain the UK's position as the leading private equity market place in Europe.
In its letter of recommendations, the association promotes a wider use of share option schemes to better align the interests of senior managers, investee companies and investors. It is suggested that managers should be allowed to acquire options with a market value of up to £100,000, as opposed to the £30,000 that are currently allowed.
The BVCA also wants to see the abolition of capital gains tax taper relief, proposing the introduction of a flat rate for the tax instead. The BVCA has also proposed a rise in income tax relief on investments in venture capital trusts (VCT) from 20 to 40 per cent to restore the attractiveness of VCTs to investors.
Commenting on the importance of the initiative, John Mackie, chief executive of BVCA said: 'Our industry operates in a competitive environment worldwide. We do not operate in isolation. These are measures in place to maintain and improve the UK's position as the best place in Europe to establish a private equity business.'
To support its case, the BVCA has also published its fourth economic impact survey, showing that private equity-backed companies outperformed their FTSE 100 and FTSE 250 counterparts in job creation, sales growth and taxes.
'If you take our industry that employs three million and look at the rate of creation of new jobs and investment growth, all of this is evidence that private equity backed companies outperform any other part of the UK economy,' explained Mackie.
The report, which was conducted by Bannock Consulting, showed that over the five years since 1996/7 the number of people employed by private equity companies increased by an average of 23 per cent per year, against a national private sector growth rate of 1.5 per cent. 15 per cent of Britain’s workforce are employed by venture capital and private equity backed companies.
The report also found that, during the same period, private equity backed companies' sales rose by 30 per cent per year, three times that achieved by FTSE 250 companies. Exports, meanwhile, grew by 20 per cent per year and investment rose by 25 per cent, compared with a national increase of 2.3 per cent.