Gordon Brown and Alistair Darling are to bow to pressure from business by retreating on key tax reforms made in the Government’s autumn Budget statement, The Times has learnt.

Three weeks after Mr Darling announced his plan for a single 18 per cent rate of capital gains tax he is to soften the blow by giving £100,000 in tax relief for small businessmen who sell up and retire.

It means that business owners who would have faced a near-doubling in the tax they pay on selling their assets – from 10 per cent to 18 per cent – will now pay far less.

The U-turn comes after sustained pressure from the CBI, the British Chambers of Commerce, the Federation of Small Businesses and the Institute of Directors, which joined forces against the Government after being flooded with complaints from their members.

The climbdown also came on the day that the Government withdrew controversial plans to claw back £80 million from school budgets.

Ministers had proposed to impose a 5 per cent levy on schools that hold any surpluses at the end of each financial year, regardless of whether the money had been earmarked for specific projects.

But schools complained that the plans, revealed in The Times last month, would penalise those that were prudent with their finances or savings for capital projects. The proposals have now been dropped.

Mr Brown has already made a series of U-turns on policy stances taken during the Tony Blair years, including on cannabis classification, casinos, 24-hour drinking and taxes on rubbish. But the changes on capital gains tax will amount to the biggest shift on a policy announced under his stewardship.

Under the plans The Timesunderstands that Mr Darling is to bring back a system of “retirement relief” to owners of small and medium-sized businesses who sell up and retire. There will be a sum– possibly as high as £100,000 – that would be exempt from tax on sale.

Stephen Alambritis, of the Federation of Small Businesses, last night welcomed the change. He said: “It will be of great help to those entrepreneurs who have spent 20 to 30 years building up their businesses and have suddenly found their retirement plans thrown up in the air.”

The Chancellor is also considering further changes to help entrepreneurs after complaints that his package damaged the risk-taking spirit his predecessor tried to inculcate. One option is tax breaks for people selling businesses rather than those just retiring.

Retirement relief, which then stood at £250,000, was abolished in 1998 when Mr Brown scrapped the standard 40 per cent rate of CGT and brought in taper relief that meant lower levels of tax farther down the line.

The exempt sum will not be as high as before because the tax rate is so much lower. but the revived system will be straightforward and easy to understand, The Times has been told.

Mr Darling is scrapping “taper relief” so that capital gains tax, which was charged at rates from 40 per cent down to 10 per cent, is set at a standard 18 per cent. Business assets held for more than two years were taxed at 10 per cent but that will go up to 18 per cent under the Pre-Budget Report.

The changes were aimed mainly at catching private equity groups who took advantage of the low rates when selling assets.

Now, The Times understands, Mr Darling and Mr Brown are acting to safeguard people who were not apparently the intended targets of the changes. Mr Brown, who was lauded in his early years for the pro-business tone of his chancellorship, has been frantically lobbied behind the scenes by business groups and is clearly keen for Mr Darling to respond.

The Times has also learnt that Mr Brown intended in his last Budget as Chancellor in March to announce the £700,000 inheritance tax threshold for couples that was finally introduced by Mr Darling on October 9.

It was removed from the March Budget after Mr Brown concluded that the cost of making the changes retrospective to enable husbands and wives to use the allowance of their late spouses would be too high. He had also decided that a 2p cut in income tax from next April would be the eye-catching feature of his final package.

But his decision to hold back on inheritance tax opened the way for the Conservatives to grab the initiative at their Blackpool conference with plans for a £1 million threshold.

Mr Darling then went some way to matching the Tory plans by dusting off the proposals that were almost adopted in March and setting a threshold of £700,000 for couples from 2010.

Ironically the capital gains tax changes eventually would have raised nearly £950million a year and would have gone a long way to paying for the inheritance tax shake-up, which will eventually cost £1.4 billion annually.

Now Mr Darling will need to find extra sums to meet the cost of the concessions that he makes on CGT.

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