Friday, 29 August 2008

George Osborne - The Uk is losing business to Ireland.

George OsborneWhy oh why are we losing business to the Irish? The simple answer is - corporation tax. Surely it does not take a financial genius like Gordon Brown (joke) to work out that if companies say they are moving from the UK to Ireland because of "concerns over the [UK] tax environment" that we must follow the Irish lead and cut our corporation tax. Corporation tax in Ireland currently stands at 12.5% - which is less than half of the UK's 28%. The "Celtic Tiger" is thought by many economists to be a result (at least in part) of Ireland's low corporation tax.

From the Conservative website:
George Osborne has written to Alistair Darling to urge him to take urgent action to prevent more companies from leaving the UK. Regus, Henderson Group and Charter are all thinking of leaving the UK because of concerns over the tax environment. This follows previous announcements from Shire and United Business Media that they are relocating to Ireland.

George, the Shadow Chancellor, blamed the exodus on the confusion created by Labour's dithering over the business tax regime and the fact that we have some of the highest corporate tax rates in the EU. He called on Darling to adopt our plans to reduce the main rate of corporation tax from 28% to 25% and simply the business tax system: "With companies leaving Britain, weakening an already ailing British economy, I urge you to adopt our proposals in order to restore our competitiveness and help prevent any more companies from deciding to leave the UK."

2 comments:

Mark Wadsworth said...

Sorry, that is inaccurate. Lord Forsyth pointed out two years ago exactly how to fix this issue at minimal overall cost (approx £1 billion per annum or thereabouts static tax loss). The relevant background, from the point of view of the holding company of an international group (with relatively little UK or irish-source income, e.g. Charter is as follows:

There are two ways of taxing dividends from overseas subsidiaries;

1. Exempt them entirely (or exempt 90% or 95%, possibly with a disallowance for interest costs if they relate to the investment overseas), which is what most European countries do, or...

2. Tax them at the normal rate, with a credit for underlying overseas tax, which is what the UK and Ireland do. Obviously, there are lots of countries with an effective rate of less than 28% but very few with an effective rate less than 12.5%, so in practice, the Irish-resident holding company of an international group pays little tax in ireland (its subsidiaries pay the same amount of overseas corporation tax, of course)

Lord Forsyth's solution (perfectly sensible and long adopted into the MW manifesto) is to do like other European countries and just exempt dividends from overseas subsidiaries entirely, this would on the face of it reduce corp tax receipts by £1 bilion (the net corp tax, once reduced by credit for overseas tax) but of course we'd make up most of that in other taxes (like PAYE and so on).

There is absolutely no need to cut UK corporation tax to 12.5%. Ireland got away with it because it is a small country (4 million pop.) so if it loses half the revenue from domestic companies, it can make this back by getting holding companies to relocate there - it is a tax haven.

This scam would not work for the UK because there are simply not enough international holding companies to go round. So we'd lose more than we'd gain by halving corporation tax - but the cost of exempting overseas dividends is well worth paying.

Further, if you want to cut taxes on business in the UK, it's VAT and Employer's national insurance (that between them raise three times as much as corporation tax) that are the real killers.

Harry Hook said...

Of course... there is another side to this Steve... and something the Conservatives need to seriously consider.

About 3 years ago, I was told by a senior partner of a well respected firm of accountants, that the UK Government is definitely corrupt in its formulation and implementation of its tax policies - amongst many other things. Putting aside the usual political banter, I had never heard anything like this before being expressed by a tax professional on business matters... and I'm not alone.

Whatever the percentage, if an individual or company, is constantly advised that they are being turned over, then they will eventually vote with their feet and seek the shores of a more honest Banana Republic.