Liz Webster protests with farmers against Labour's budget
Rachel Reeves is facing further pressure to reverse one of her key Budget tax rises, as thousands of family-run businesses demand a U-turn on inheritance tax changes.
Thirty two Trade Associations, representing more than 160,000 family-run firms in Britain, have written to the Chancellor demanding a full and formal consultation on the hike.
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Family Business UK, which headed up the effort, has warned Ms Reeves that her tax hike will not only clobber farmers but risk starving firms of investment, and force a number to sell up prematurely.
She is also warned her plans will result in job losses at a crucial time.
The Treasury claims that changes to Business Property Relief (BPR) and Agricultural Poverty Relief (APR) will raise around ￡520 million a year.
READ MORE: Kemi Badenoch blasts Labour for 'crashing the economy'
Ms Reeves is hiking inheritance tax on family-run businesses such as farms (Image: Getty)
However new independent economic forecasts commissioned by Family Business UK, conducted by the Confederation of British Industry, suggest that the changes will actually end up costing the Treasury money.
The modelling reveals that changes to BPR alone could end up losing Ms Reeves ￡1.25 billion, as well as sacrificing 125,000 jobs.
It warns that over the course of this parliament, the potential reduction in economic activity as businesses sell up or expand at a slower rate could end up costing over ￡9 billion by 2029.
Ms Reeves’ changes will see any business or farm assets worth more than ￡1 million will become liable for 20% inheritance tax when the business owner dies, a move that has already sparked two major farming protests in Westminster.
Family Business UK warns that in order to cover these new liabilities, business owners will be forced to take money out of the business which would otherwise have been invested in growing the firm.
If money is taken out as dividends, they are also taxed at 39.5%, which would effectively create a double taxation system.
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Family-run businesses will cut investment and jobs because of the tax changes (Image: Getty)
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While the Treasury insists that only 500 family farms and 500 family businesses a year will be affected by the changes, the CBI analysis suggests three times as many family businesses will adjust their behaviour each year to mitigate the tax rise.
The modelling finds there will be an average reduction in investment of 16.5% a year, and a reduction in headcount of 10.2% a year, leading to a 7.4% loss of turnover.
Their letter to the Chancellor warns: “If the purpose of this policy change is to incentivise investment, support growth and fill a fiscal shortfall in the public finances, these changes will not deliver that.
“BPR and APR are not loopholes. They exist for a purpose. Introduced by Labour in 1976, they allow profitable businesses to continue trading, without penalty, when the owner dies.
“No other model of business ownership is subject to these punitive taxes when a business transitions ownership. BPR therefore allows family businesses to compete fairly with PLCs, private equity and other models of business ownership.”
Neil Davy, CEO Family Business UK said: “The model of family business ownership is unique. It powers the entire economy from farming to finance and everything in between. This letter, and those who have chosen to sign it, are testament to just how widespread family ownership is, and how committed we are to speak up on behalf of our members.
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“The changes to Inheritance Tax for family businesses and farms are a hammer blow. In many cases, those inheriting the business will have no alternative but to sell up when the owner dies, rather than continue running the business.
“In these circumstances, there is a real risk that businesses, assets and farms will be sold to foreign-owned competitors or investors who will pay little to no tax in this country.
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“Already, family business owners are taking decisions to withhold planned investments and are putting recruitment on hold. Those working for family businesses are also extremely concerned, worried about how these changes might impact them.
“We do not believe that these are the outcomes the Government envisaged. So, we are calling on the Chancellor to meet and run a formal consultation, to find a solution that will protect the long-term interests of family businesses and farms and, crucially the jobs and investment they provide.”
Among the Trade Associations who signed the letter are the British Beer and Pub Association, the British Independent Retailers Association, the Electrical Contractor’s Association, Historic Houses, Hospitality UK, the National Farmers Union, and the Wine and Sprit Trade Association.