Time to ‘suppose once more’ Chancellor: Reeves should do ‘full U-turn’ on inheritance tax raid that may cripple household corporations, marketing campaign chief warns

Paul Andrews is founder and chief executive of Family Business United

Family firms are the lifeblood of our communities and our economy. 

They take a long-term view, often thinking in generations and believe it or not, they make up over 90 per cent of the businesses in the UK and employ 57 per cent of the workforce. That’s around five million businesses employing 12million people. 

A Government that wants to support growth should be straining every sinew to support them.

Family Business United chief Paul Andrews

Instead, Chancellor Rachel Reeves has made them the target of an ill thought-out tax grab.

From April, she plans to reverse business property relief – a system put in place by another Labour Chancellor battling to revive the economy, Denis Healey in 1976.

After months of controversy, she has increased the threshold at which inheritance tax will be levied at 20 per cent from £1million to £2.5million when any business passes from one generation to the next.

But this U-turn goes nowhere near far enough.

What the policy overlooks is the fact that it will drag many ordinary family businesses into the tax net. 

Many are medium sized enterprises and they tell me that while their businesses might be asset-rich, they’re cash poor, operating on fine margins. 

They are investing in their businesses, their staff and the infrastructure to build sustainable businesses for generations to come, without readily available funds to meet inheritance tax liabilities on the death of key shareholders. 

These business leaders will be forced to contemplate selling or breaking up their family firms to meet the bill. Surely we don’t want to make it even easier for foreign businesses (who won’t pay this tax) or private equity to swoop in and buy up great British brands?

Many family businesses will be lost forever – businesses at the heart of communities the length and breadth of the nation, who do so much to support the communities in which they operate over and above the jobs they provide, the income they create, the wealth they produce and the taxes they already pay.

There are around five million family businesses in the UK with 12million employees

We’ve heard a lot about the plight of family farmers who will be hit when the Chancellor makes a similar change to agricultural property relief, and fully support their endeavours to have that policy fully reversed, but the impact on family businesses will be crippling too. 

Family firms are recognised as being amongst the best employers, often regarding their staff as extensions of the family yet it has been estimated that the Chancellor’s reforms will lead to hundreds of thousands of job losses – the last thing we need with many of our young people struggling to find work and unemployment rising.

What’s even more perverse is that it looks like they will actually cost the Treasury money rather than raise any.

The Treasury forecasts that it will take in a few hundred million a year in extra tax, a very modest sum in the grand scheme of the public finances. But the scale of the job losses and all the lost tax that will result means the overall cost to the Treasury is significantly more. So the sums don’t even add up.

That’s why I support a judicial review of the Government’s failure to consult on the policy, being brought by a number of concerned businesspeople including Steve Perez, chief executive and founder of Global Brands, the biggest independent drinks manufacturer in the UK.

All we’re asking for is a proper review of the impact of the proposed change and a consultation with business leaders. We are convinced it will persuade Labour MPs and the Chancellor to think again and implement a full U-turn, enabling family firms to focus on the future, investing, growing and building businesses for generations to come.