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Labour unveils ‘fairer’ tax system

Tax reforms to encourage long-term business investment are being unveiled as part of a Labour plan to create a “fairer” system.

The party is looking at a number of measures to halt short-termism in the corporate world, including introducing a lower rate of capital gains tax for investors who stay the course and a system of tax reliefs to encourage companies to rely on equity rather than debt.

Shadow chancellor Ed Balls will confirm he intends to push ahead with proposals to overturn a planned cut in corporation tax if Labour takes power next year to fund a reduction in businesses rates – a move aimed at smaller companies.

The party is also launching a bid to close a loophole in the eurobond system that costs the UK an estimated £500 million a year.

In a speech to the London Business School , Mr Balls will say: ” New times demand a new approach. Not only do we face new challenges from technological change and globalisation, we must also deliver at a time when there is less money around.”

Labour will look at at introducing an allowance for corporate equity to counter the current corporation tax system that treats debt interest payments as a deductible expense.

Mr Balls will say: “Such a scheme would offer a strong incentive for long-term investment, building more robust businesses that would be better able to plan for the future. We will consult with business and other stakeholders on the case for introducing this reform, and how it might be implemented.

“We will also examine the possibility of structural changes to the tax system to incentivise long-term investment. In his report on short-termism in British business, Sir George Cox recommended a series of reforms including a lower rate of capital gains tax for long-term investors.

“This could complement an allowance for corporate equity, by making long-term investment attractive to the investor as well as to the recipient of funding.”

The Coalition has repeatedly cut corporation tax since taking power in 2010, when the rate was set at 28%. It is due to drop to 20% in 2015/16, the financial year that begins the month before the general election.

Mr Balls will say: “The last Labour government left Britain with the most competitive rate of corporation tax in the G7 and we are committed to maintaining that position.

“But unlike George Osborne we also recognise that companies are just as concerned about other elements of the business tax regime, such as capital allowances and business rates.

“That is why, having started and supported successive cuts in corporation tax over the last 15 years, we do not think the right priority is a further cut next year.

“We will, instead, cut and then freeze business rates for more than 1.5 million business properties. When resources are tight this is a tough choice to allow us to support more businesses and keep our overall business tax regime competitive.

“The purpose of a competitive tax system must be that companies view Britain as a great place to do business, not simply a cheap place to shift their profits.”

Business minister Matthew Hancock said: “Ed Miliband and Ed Balls are planning to put up corporation tax and put up National Insurance – taxes on businesses and on jobs.

“So it’s clear that the anti-business Labour Party is the biggest risk to the recovery, to investment and to jobs.

“Ed Miliband predicted that our long-term economic plan would cost ‘a million jobs’. But our tax cuts – paid for by difficult decisions that Labour opposed – have helped firms create two million new jobs.

“While there is more to do as we work through our plan, that’s two million more people with the security of a regular wage and a chance of a brighter future. But Labour haven’t changed – Ed Miliband has no economic plan and is simply not up to the job.”

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