If the Treasury is worried about companies going overseas perhaps it should stop looking at corporation tax rates and concentrate on income taxes. It is the 50p top rate on pay that is now making firms look abroad.
Frankly, the latest document from the Treasury suggests that either the government is no longer concerned at the exodus of UK corporations or has failed to come up with any solution. The chancellor created a high-level forum on stopping companies changing their base in May 2008: nearly two years later it has come up with a two-page “tax framework” printed in large type to make its 618 words fill the paper and given a front and back cover to stop it looking like a single sheet of paper.
One can support simplicity – one of the six points briefly covered in the framework – but this looks like it was scribbled on a cigarette packet and the civil servant stopped when he’d smoked the contents.
The other five points aimed at giving certainty to multinationals are competitiveness, minimising distortions, stability, tax and compliance costs plus fairness – though the single sentence on the latter explains the fairness of firms paying tax, not the government’s fairness is applying taxes equitably.
There is nothing in this thin document that would stop big companies going to Luxembourg or Ireland, the Netherlands or Switzerland. Ministers may mistakenly have through the exodus has ended but that is simply because the recession has pushed other matters up the boardroom agenda. Only recently the drinks giant Diageo and chemicals group Ineos warned that they are looking at moving abroad and a Sunday Times poll found that half the country’s top 30 companies confessed to considering a move.
The chancellor was prompted by the decisions of companies such as Shire Pharmaceuticals, United Business Media and WPP to move. He should not think they are the last, but the concern about corporation tax has been overtaken by worries over the new 50 per cent income tax on pay exceeding £150,000. Unlike the 50p levy on City bonuses, this is not a one-off tax but a new top rate.
Tullett, a firm of City money brokers, has already made arrangement for staff to transfer to Switzerland; Shore Capital is moving to the Channel Islands. The Treasury should realise that it risks losing people as well as companies. And if it plans a “tax framework” aimed at stopping this new exodus it needs something more substantial than the last effort.