George Osborne needs a bolder plan to stop businesses quitting Britain

By Tim Montgomerie

The IMF showered praise on George Osborne yesterday for his deficit reduction strategy. A delighted Chancellor toured the nation's TV studios to bask in the well deserved glory.

But in taking the job of being Chancellor Mr Osborne never expected an easy life and I'm still concerned that his boldness on cutting is not matched by boldness on growth. I've written before about the need for a 10,000 volt message to business that the new UK government is determined to restore British competitiveness. Vince Cable's "anti-capitalist mood music" (City AM) last week may have been good politics but it doesn't help in this task.

Yesterday another FTSE100 company - the building firm Wolseley - announced that it would be headquartering outside the UK, partly because of Britain's increasingly uncompetitive tax system. They follow WPP, Brit Insurance, United Business Media, Regus, Charter, Ineos, Henderson, Shire and Informa - taking jobs and tax revenues with them. The exodus would only get worse if Ed Miliband pursued his high-taxing policies. Osborne, himself, cannot afford complacency, however. Even if he succeeds in meeting his deficit targets he'll only take Britain back to the size of state that we had in 2007, when Britain was already sliding down league tables for international competitiveness.

In The Times (£), Miles Templeman of the Institute of Directors warns that the exodus might be about to accelerate:

"Some commentators claim that the rate of exodus from the UK of parent companies for tax reasons has slowed in the past two years. And certainly company boards have probably been more focused on guiding their businesses through the recession than devoting time to considering the relative tax advantages of different countries. But with a slow economic recovery under way that moment has passed. Finance directors are looking at their options, as we have seen in the case of Wolseley. The UK’s increasingly poor tax competitiveness will be a big factor in determining where companies locate."

Mr Templeman says current Coalition moves on tax competitiveness are inadequate:

"The coalition is heading in the right direction, but there is a long way to go. A 24% rate of corporation tax is an improvement, but even that will not make the UK remotely attractive. And while the Government has moved to reverse the overall effect of the 1 per cent increases in national insurance rates, there are still some losers from those increases. We have also not seen a timetabled commitment to removing the 50% income tax rate."

Conservatives like Lord Forsyth have long argued that we need to be cutting some taxes now in order to get the economy motoring. On his blog this morning, John Redwood urges lower tax rates if we are to avoid "footloose" businesses and entrepreneurs leaving for friendlier jurisdictions.

George Osborne's lack of belief in the supply-side benefits of tax cuts - and his appointment of Robert Chote to head the Office of Budget Responsibility - gives him little room to argue that lower taxes can often pay for themselves in the medium-term. What he does need to do, at the very least, is more rebalancing of the tax system. That means higher taxes on unproductive activities (high value properties and 'sin') to fund lower taxes on productive activities (jobs and investment). That - alongside reform of schools and welfare - is what businesses need to hear.