Healey’s Budget Settlement: Banks Fund the High Street, Family Firms Pay the Price

Sell a £1 million family business to a stranger and the tax bill comes in at £240,000. Hand the same business to your children and it could cost £450,000. Healey’s first Budget, due October 28, is reported to be considering exactly that inversion, taxing handovers to the next generation as income at up to 45% instead of capital gains at 24%.

An HMRC consultation, published June 23 and closed September 14, already built the machinery. It proposed “freezing” the capital attributed to holding-company shares at what was originally subscribed, so more of a buyback return counts as a taxable distribution rather than a capital receipt. The department noted that existing rules “allow for various arrangements usually involving holding companies and share reorganisations to extract value while paying CGT rather than Income Tax.” The consultation never named family businesses. The ICAEW had flagged the impact on companies before responses closed, six weeks before Budget day.

The biggest revenue raiser is the bank surcharge: restoring it from 3% to 8%, reversing Jeremy Hunt’s cut, could bring in about £2.2 billion a year, the TUC estimates. TUC general secretary Paul Nowak says Britain’s big four banks are making a billion pounds a week. UK Finance, the banking trade body, warns the move would “weaken competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode.” Healey himself told reporters the banks are “hardwired into the economic fabric of this country.” Capital gains tax stays put.

What the banks lose, the high street keeps. Lifting the small business rates relief threshold from £12,000 to £18,000 of rateable value would take about 75,000 properties out of rates entirely. That is 39,000 shops, 2,600 pubs, 2,500 restaurants, 2,000 salons and 1,600 cafés, for roughly £460 million a year, the tax firm Ryan calculates. A separate 20% cut to rates bills for pubs, social clubs and live music venues starts in April. Fiona Johnston, president of the National Hair and Beauty Federation, welcomed it “at a time when a significant proportion of salons are struggling.” Her September survey found 39.7% of employers had cut staff in the previous three months, against 4.8% hiring. One independent salon made its case in a 13-slide Instagram letter headlined “ANDY, MATE… THE KETTLE’S ON”: a £72 senior-stylist cut leaves £60 after £12 of VAT, and the bills behind it, wages, employer NI, rates, rent, stock and power, run to about £367,000 a year.

New SME loans now average 6.63% interest against 5.57% for businesses overall. Lending to larger companies is growing almost twice as fast, Gibraltar Corporate Partners notes, citing Bank of England data. That’s the lenders’ counter-argument: a surcharge on small firms’ lenders ends up priced into the loans. The IMF has pushed back, urging spending restraint on pensions and benefits instead. The money has a destination: a Reuters poll of economists put the Chancellor’s fiscal headroom at £10-12 billion, halved from £23.6 billion in March, with the target near £15-16 billion. £3.2 billion in from banks and platforms against £460 million visibly returned to the high street.

“The proposed change would make it easier to sell a family business than to pass it on to your own children,” Shadow Chancellor Andrew Griffith said. “That cannot be right.” It would be the second blow to family firms under Labour after Rachel Reeves’s inheritance tax changes, expected to raise more than £300 million. More than five million family businesses support around 15 million jobs, government figures say. An accountant’s viral reaction on Instagram asked the question the Telegraph story started: “Tax on passing a business to your kids!?” The TUC wants the surcharge higher still, at 16%, which it says would raise £24 billion over four years.