Schedule 22

From yesterday’s Guardian.

The creation of spin-off companies by university researchers, one of the chancellor’s key policies, has ground to a halt because of a catch-22 in tax legislation, say frustrated academics.

Gordon Brown, who today hosted a seminar on science and wealth creation at 11 Downing Street, has been alerted to the problem, but has so far failed to sort out the muddle over the aptly named Schedule 22.

Plans for scores of companies to work on developing science and research projects have been put on hold by universities after they learned that their academics were threatened with multimillion pound tax demands as soon as the companies started operating, long before they made any profits.

To add insult to injury, the universities themselves are responsible for collecting the tax from their enterprising academics.

University business development officers believe that spin-offs have almost ground to a halt and fear that delays will be damaging to many ideas and projects.

This arose because of one of those tax loopholes that our Chancellor so loves to close.

Schedule 22 of the 2003 Finance Act was introduced by the chancellor to plug a tax loophole …

I told you. A tax loophole. Tax loopholes are evil, evil, evil. As a result of tax loopholes, people pay less tax, and that is bad.

… by which City firms were creating companies and funnelling in money.

Employees were given shares on which they paid 10% tax instead of the 40% they would have been taxed on their wages. The Inland Revenue now values the spin-off company’s assets and taxes the shareholders accordingly.

But an unintended consequence was to catch entrepreneurial academics in the net. …

So, Gordon Brown is, by closing a tax loophole, destroying one of his own “key policies”.

So what is being done to correct this particular unintended consequence? Not much, apparently.

For more than a year, Unico, the university companies’ organisation, has been engaged in talks with the Treasury, the Inland Revenue and the Department of Trade and Industry (DTI) to try and find a way round the problem – so far without success.

But now, good news!

Today the Treasury said Schedule 22 had been designed to protect the tax system against abuse but was seriously considering the tax issue facing university and public sector spin-off companies.

Oh well, okay then, they are “seriously considering” doing something about it. In fact, so seriously have they been considering doing something about it that they have been seriously considering it for more than a year.

So what exactly is holding them up? Well, a spokeswoman said:

“Inland Revenue, Treasury and DTI officials have worked closely with the sector to try to find a structural solution. …”

Ah yes, a “structural” solution. They would stop robbing these entrepreneurial academics, but they have to find a way to stop doing this structurally. Just stopping would not be good enough.

Being charitable, I am guessing that by “structural” what they mean is that they need to find a way of not clobbering these entrepreneurial academics which leaves those city slickers with their evil tax dodging still caught in the newly woven net. Faced with the choice between catching dodgers and clobbering innocent would-be academic entrepreneurs, or not clobbering the entrepreneurs but maybe also not catching the dodgers, they want to carry on catching the dodgers. If that brings academic science spin-offs to a shuddering halt, well, too bad. Omelettes, eggs, blah blah blah. And if you are one of the eggs, bad luck on you.

Taxation is theft, as I and like-minded friends have long said. But there is something particularly larcenous about our present Chancellor, who boasts of his financial probity and his fiscal acumen, and of how he has not raised income tax, while busily increasing taxes of all other kinds, and closing ‘loopholes’ in ways that turn out to have consequences that are all very regrettable and all that, but which still remain in place and damn the consequences.

That, rather than encouraging science academics to go into business, is Gordon Brown’s most characteristic “key policy”.

I sincerely congratulate the Guardian on this report. I am not the smartest Internet searcher in the world, to put it mildly, but unless I am mistaken, only the Guardian has yet reported this particular piece of governmental thievery and destructiveness.

If that is right, then I have to say that I am actually rather pleased that our Chancellor has finally hit on a scheme which is peculiarly hurtful to that class of persons, academics (the ultimate Guardian-readers), who have hitherto been most unthinkingly supportive of the (stealthy) taxing and (unstealthy) spending mentality that animates our Chancellor and his fellow not-so-New (and now Older with every day that passes) Labourites. True, these particular academics are academics of the entrepreneurial sort, and as such not perhaps the ultimate in Guardian-reading. But these are the kind of people who now keep universities seriously going, and – you never know – maybe these squawks from across the campus will be heard by the seriously academic academics, the determinedly unentrepreneurial academics, the way that no other squawks of pain would be, other than their own.