AS CEO of one of Britain’s biggest family businesses, which works every day with tens of thousands of other employers, I understand the contribution that owner-run firms make to our economy and our communities.
From the moment my late father Sir Alec founded Reed in 1960, through nearly seven decades of growth, innovation and, crucially, job creation, our purpose has been simple: improving lives through work.
This reflects our family values — and I am always conscious that it’s our name above the door.
Yet today the ecosystem of family firms that underpin the UK’s economic life is at risk from a short-sighted tax policy that I believe should be reversed.
Britain’s family businesses are the backbone of our economy. Family firms make up a startling 90 per cent of businesses across every region, sector and community, and employ well over half the workforce.
These are enterprises rooted in local towns and cities, not international hedge funds chasing quarterly returns. Their investment horizons stretch decades, not months. Their “shareholders” are parents, sons, daughters and very often lifelong employees.
A Government that wants to support growth, jobs and long-term prosperity should be straining every sinew to encourage these enterprises, not impose new burdens on them.
Yet the Chancellor has introduced controversial reforms to Business Property Relief (BPR) — a relief that has, for generations, allowed family businesses to be passed from one generation to the next without crippling tax liabilities. From April, this historic relief will be capped. After an outcry the Chancellor made a semi U-turn and increased the threshold at which this will apply both for family firms and farms from £1 million to £2.5 million. Any value above that will face an inheritance tax charge — a new 20 per cent levy.
The adjustment to the policy has not fixed the problem. Many mid-sized family firms will still be dragged into the tax net.
This matters, because the bulk of the value of family firms is often tied up in people, premises and long-term investment. They are asset rich and cash poor. Many operate on fine margins. They reinvest much of what they do earn in training staff, developing products and supporting local economies. Few have mountains of ready cash lying around to settle tax bills running into millions of pounds on the death of a founder or major shareholder.
The inevitable consequence of these reforms is two-fold: first, a chilling effect on investment and hiring; and second, the forced sale or break-up of companies that would otherwise continue to thrive under family stewardship for years to come.
People inheriting companies will have to raise cash to settle the debts that arise. There will be huge pressure to sell — and who will swoop in but private equity?
Is our strategy to ensure great British-owned enterprises fall into the hands of foreign vultures who will cut them to the bone and flip them after five years? If not, the Government should think again.
Already, surveys and economic modelling suggest that family businesses are responding to the uncertainty by cutting investment plans, pausing recruitment and scaling back expansion.
I am following closely the progress of a judicial review being brought by a group of family businesspeople based on the Government’s failure to consult, which is due to be heard in the High Court shortly.
If ministers had consulted, they would have been warned that their proposals could lead to 208,000 job losses, according to research for Family Business UK.
This is the last thing we need at a time when young people are finding it harder to secure stable work and when policies such as a higher minimum wage and employers’ National Insurance, not to mention the march of AI, are already weighing heavily on the labour market.
Jobs are my business and let me speak plainly: they don’t grow on trees. They are created when entrepreneurs take risks, when founders reinvest profits into hiring and training and when companies plan with a long-term view rather than focusing on the need for short-term profitability. Family firms do exactly that.
By contrast, the forthcoming inheritance tax reforms actively discourage growth beyond arbitrary thresholds, because owners will be forced to ask themselves whether building a business is worthwhile or whether it will simply saddle their heirs with tax bills they cannot meet.
Why invest in your family business if all it will do is punish the next generation?
It’s no surprise that some owners are already restructuring, selling shares prematurely or not pursuing the expansion that would have otherwise created jobs and boosted tax receipts. An alternative option is to give shares to a charity and become a ‘philanthropy company’, or PhilCo, like Reed, which will soon be 20 per cent owned by the Reed Foundation.
This is also about what’s best for the public finances. Early projections suggested that the reforms might raise a few hundred million pounds for the Treasury. But when one takes into account the contraction in economic activity, reduced employment and lost tax revenues from corporation tax and National Insurance, the net fiscal impact looks likely to be negative.
A responsible Government would recognise this. So what should happen next?
First, the Government should pause the implementation of its reforms and undertake a full consultation with business leaders and economic experts. This should start from the premise that family enterprises should continue to be able to be inherited without undue tax impact — not just the smallest firms, but across the spectrum that contributes so much to jobs and regional prosperity.
Ministers should be going all out to support family businesses and to foster a modern UK equivalent of the German Mittelstand: the owner-run firms that have for many decades formed the backbone of that country’s economy.
Britain already struggles to scale up its companies. We are second to none in founding startups, but too many promising ventures end with founders selling up rather than building multi-generational firms. Let’s not make this problem worse by handicapping the very enterprises that can provide the stable, long-term employment and investment this country desperately needs.
It’s time to reverse course. Let’s back British family business — the real job creators, the anchors of our communities and the engine of long-term economic growth.
