UK’s Labour promises capital gains tax cut

UK’s left-leaning Labour party is positioning itself as an ally to business by proposing a range of new tax breaks conducive to economic growth that could have a particularly strong impact on the private funds industry.

The UK will hold its next general election next May. Labour is slightly ahead of the Conservative Party in latest YouGov/Sunday Times poll. Of note is a vague pledge to slash the capital gains tax for long-term investors that would counteract a “short-termism” investment ethos in British business, said Labour’s shadow chancellor Ed Balls during a speech at the London Business School on Monday.

Balls also said he wants to “to redress the systemic bias in favor of debt finance” by introducing a similar tax break for corporate equity investments. The move, known as an “allowance for corporate equity”, was recommended by leading economic think-tank the Institute for Fiscal Studies in 2010.

Not all the proposed reforms will be met with industry praise however. The shadow chancellor warned Labour will introduce tough measures to clamp down on tax avoidance, including a promise to close the “eurobonds” loophole. The Quoted Eurobond Exemption (QEE) allows company owners to lend money to companies via an instrument listed on the Channel Islands Stock Exchange, the interest payments for which are not currently subject to the standard 20 percent withholding tax usually applied to overseas payments.

In the past Tim Hames of the British Private Equity and Venture Capital Association has spoken out against this characterization of the QEE, arguing the exemption exists to encourage foreign investment. Removing QEE would result in “less investment coming into the UK, and into social care providers where it is desperately needed”, he said.