With Budget day approaching, Craig Harrison, a partner at law firm JMW, sets out the tax rumours currently causing most concern among his clients in today's Notebook.

Tax rumours are unsettling the business community

Much has changed since the last Budget. A key justification for previous tax increases was the need to close the £20bn fiscal gap and build 'headroom' so that the UK economy could withstand unforeseen economic shocks and invest for the future. The defence budget has recently come into sharper focus, but persistently high inflation arguably poses an even greater challenge for the new Chancellor, John Healey, because it indirectly drives a significant rise in public spending on inflation-linked payments.

It now appears that any headroom will be replaced by a deficit, and with meaningful spending cuts unlikely, the business community is nervous that new taxes will be announced on Budget Day.

A wealth tax has been mentioned, but it is notoriously difficult to introduce and even harder to collect successfully. There have been interesting reports on the mechanics of collecting a so-called 'mansion tax', yet property is far more straightforward to tax than worldwide assets, crypto assets, and shares in private companies. The practical difficulties are borne out internationally: only a handful of OECD countries, including France, Spain and Switzerland, still levy a wealth tax, while Germany abolished its wealth taxes in the 1990s, with collection and valuation difficulties among the reasons cited.

An exit tax, levied on those changing residency or tax domicile, is also much discussed. Several countries already operate departure taxes — the United States, Canada and Norway, for example, tax certain gains when individuals cease to be resident — so the UK would not be alone in considering such a regime. Although it may prove popular, there is a real possibility that wealth creators will leave in large numbers out of fear of such a tax — from their perspective, if it is a possibility, why wait for it to be introduced? Their departure would certainly not help the Treasury's coffers.

Finally, aligning capital gains tax more closely with income tax is another possible tax increase. The two taxes are currently levied at materially different rates, which is precisely why harmonisation is so often floated when Chancellors search for revenue. It has been some time since entrepreneurs enjoyed generous tax reliefs when selling their businesses, and further disincentives would stifle entrepreneurship and deter the investors who support those businesses.

Growth is an ambition shared across all the main parties and should certainly be the focus for Mr Healey. Encouraging corporate transactions could generate significant tax revenue — perhaps needed now more than at any other time in our lifetime. Enabling ambition and entrepreneurship to help grow the economy would provide the boost that both the business community and government desperately need.

Entrepreneurship through acquisition is under celebrated

There are many signs that parts of the professional services sector are consistently performing well. While it is natural for distressed sectors to receive government support, it is worth remembering that not all parts of the economy would benefit from reform or change. I would, however, like to see greater encouragement for the entrepreneurship-through-acquisition business model, which plays a key role in inspiring economic ambition and often results in both job and wealth creation. This model — closely associated with the tradition of search funds, where an individual investor-operator acquires an established small business to run and grow it — allows commercially astute individuals to drive enterprise while avoiding many of the dreaded risks of starting from scratch.

Budget suspense is damaging

The next Budget will take place on Wednesday 28 October, a date announced on Friday 31 July. Three months is a long time in the economy, and successive governments have delayed Budget Day or announced fiscal events with long lead-in times. I would prefer a return to fixed points in the year for Budget Day and the Spring Statement, dates that could not easily be delayed. Why? The resulting uncertainty — especially with new administrations — can cause a slowdown in economic activity, with no guarantee of a swift or prosperous restart. Businesses planning transactions or hiring decisions are among those most exposed, since deal timelines and tax treatment often hinge on what the Chancellor announces.

Never say never, Mr Johnson!

It was widely reported last week that Jim Johnson, chief executive of Hunting plc, the London-listed energy services group, declared that the country is uninvestable and that the company will never make a big investment in Britain again, citing political upheaval. I do not know Mr Johnson, so I would not question his motives for making the announcement. I do, however, think it is important for business leaders to remember that situations and policies change, but absolutes never do.

What I've been watching

My daughter's school set her the summer task of reading R.J. Palacio's 2012 novel Wonder, which, given my age, had not featured on any of the reading lists I am regularly exposed to. Enthralled by the book, my daughter announced to the entire family that we must all watch the film adaptation together. The story embraces many themes, including resilience, acceptance, compassion, and perspective — all issues that frequently arise in the workplace. Businesses spend a fortune training people on these matters and rectifying problems when they are overlooked. It is a great film for children in their formative years.

Craig Harrison is a corporate partner at law firm JMW.