July Budget 2015: Make investments easier through tax reforms to create "equity economy", business leaders urge George Osborne

Lynsey Barber
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Tax reform will spur growth, the IoD say (Source: Getty)

George Osborne must make radical changes to the tax system to unlock the investment potential of millions of Brits and inject growth into the economy.

The chancellor's Budget, due on Wednesday, should include ambitious reform of the tax system to encourage people to buy a stake in businesses and create an "equity economy", the Institute of Directors (IoD) has urged.

“The chancellor has the opportunity to deliver an investment-boosting Budget, making it easier for businesses to raise capital and promoting investment in the private sector," said director general of the IoD Simon Walker.

Read more: Will Osborne make his mark as a tax reformer?

"The painfully complex system of unreliable allowances and competing or overlapping schemes makes it harder for businesses to take long-term investment decisions. For individuals, the process of investing is daunting, meaning many do not even consider it an option.

“The IoD is calling on George Osborne to create an ‘equity economy’, by making sure the tax system promotes investment and is easy for both individuals and businesses to understand. The priorities must be a consultation on merging capital taxes, raising the Annual Investment Allowance and creating a single personal tax relief for business investment.

The business group is calling on Osborne to make a series of changes to simplify the tax system and encourage investment. That includes a £100,000 rise in the Annual Investment Allowance to £600,000 per year; considering a merger of inheritance and capital gains tax to avoid double taxation; and increasing the threshold for inheritance tax to £1m - a policy Osborne is expected to pledge during his Budget speech.

Read more: Osborne to crack down on non-doms

“As the economy continues to recover, both business and individual taxpayers will rightly expect more wide-ranging tax reforms and simplification than the previous government was able or willing to undertake," said the IoD's head of taxation, Stephen Herring.

"Businesses, especially SMEs, are concerned about high taxes on employment, commercial property occupation and transactions as well as being convinced that government ought to try much harder to deliver authentic, far-reaching tax simplification.

“Individual taxpayers are rightly concerned with the impact of fiscal drag upon their marginal tax rates. The chancellor should also take the opportunity to make it clear the government is determined to distinguish between authentic tax planning by businesses and individuals and aggressive tax avoidance.”

Osborne will make his first all-Tory Budget announcement this week, including details of plans for £12bn in welfare cuts.

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