Osborne calls for cut in corporation tax to stop exodus of businesses

The Shadow Chancellor's letter to Alistair Darling notes how much Britain's tax competitiveness has declined under Labour, and attributes to this the potential departure of companies such as Regus and Charter.

The full letter reads:

Dear Alistair,

I'm sure you are as concerned as I am about the news that Regus, Henderson Group and Charter are thinking of leaving the UK, citing concerns over the tax environment. This news follows previous announcements by Shire and United Business Media that they are relocating to Ireland. It is further evidence of the damage done to the UK by the confusion you have caused in the last year over the future of our business tax regime, combined with the fact that ten years of a Labour Government has left us with some of the highest corporate tax rates in the European Union.

In order to prevent more companies from leaving, I urge you to consider in advance of this autumn's Pre-Budget Report the proposals we have developed on corporation tax. This involves, as an initial step, reducing the main corporation tax rate from 28 per cent to 25 per cent. Given the parlous state of the public finances, this should be paid for by simplifying the capital allowances in the way we have proposed. This would go some way towards undoing the damage the government has done by failing to keep pace with European tax rates. As I'm sure you are aware, when the Conservatives were in power, Britain had the fourth lowest rate of corporation tax in the EU, whereas we now have only the nineteenth lowest rate.

I would also urge you to implement the proposals that I commissioned from Lord Howe for a permanent simplification of the tax system. These include a new Office of Tax Simplification to examine the tax system and make proposals for simplification, and a new convention that changes to tax law should be made no later than the Pre-Budget Report. This would bring greater certainty and proper consultation in place of damaging uncertainty and a lack of consultation we have seen, as illustrated by your recent decisions over the taxation of foreign profits and Capital Gains Tax.

As you demonstrated in last year's Pre-Budget Report, you are capable of adopting Conservative proposals. 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.

Yours sincerely

George Osborne MP

Comments

[Richard Nabavi]

I think we can assume that the Chancellor will not accept this excellent advice.

Of course, it may be that the letter should have been addressed to Mr Darling's neighbour.

[JT]

Osborne mentions 10 years of a Labour government. Why do people keep on saying 10? It's actually 11 years and 4 months (almost).

[DavidRHayes]

If you can call the last year Government.

More and more people can see that the entire Conservative front bench is more suited to the job than Labour, even the talent in our backbenches is still far and away superior than Labour's front.

[Tapestry]

Ten years sounds longer than eleven. I don't know why. Perception or something. It certainly seems longer than either figure. More like twenty.

25% Corporation Tax against Ireland's 12.5%?

Come on, George. How about 18%?

[Martin Smith]

All in good time, Tapestry, all in good time.

[Londoner]

I am glad that Osborne is taking up this issue. There are quite a few other major companies considering redomiciling abroad and it's quite difficult for even the most British-orientated Boards to resist the financial logic in the present circumstances. The long term effects will not only be very damaging in terms of a shrinking tax base but will also over time affect where real head office functions (not just tax domicile) reside, resulting in a skill and brain drain and a degradation in the type of corporate jobs on offer in the UK.

In that context, I fear that Osborne's suggestions are too timid. Should we not be considering major reliefs on profits that are ploughed back into reinvestment and expansion, even if just being used as additional working capital? The present allowances discriminate against just the sort of financial services companies that are most mobile. Why not make profits mostly only taxable if they are paid out? You can state a target effective tax rate (10% or 15% perhaps) without having to cut the "headline rate" to the same extent.

Should we also start to accept that as many larger companies are now so internationally mobile that maybe we should move away from taxing them even if it means an increase in the top rates of tax on individuals (who, if they are in wealth creation or even just invest in equities, would benefit from less corporation tax)? If such a shift led to increased share valuations, it would even help out our pension funds. It's a complicated subject because, as you go down in company size, there is the risk of personal income being turned into corporate income. But we already seem to accept this with the smaller cos Corporation Tax rate being much lower that the top rate of income tax. Andrew Lilico's, and other economic gurus', views would be welcome.

Whilst politically astute, I just don't see Osborne's approach as radical enough to give hope to those of us who don't want UK plc to "walk" to Ireland, Switzerland and elsewhere.

[an honest enquiry]

It's funny, isn't it, how when it comes to being fined by the EU hundreds of millions of pounds every year for not recycling enough in the name of European Harmonization of enviromental policy we do not benefit from harmonization of taxes.
One way traffic, every time.
Perhaps Mr Osborne would be better served harping on at the EU about such discrepancies instead of messing around with a per cent here and there.
Osborne is a lightweight, simply not strong enough to be Chancellor.

[michael mcgough]

The EU under French direction are already harmonising the corporation tax base as a prelude to harmonisation .Sarkozy has held off from taking this further for fear of upsetting the Irish ahead of Lisbon resolution.

[Ulster Tory]

I quite shocked reading these comments...

David_at_home is yet to link us to a UKIP policy on the economy, or on tax!

Moving on, 25% is not enough - The Republic of Ireland is a much more attractive place to operate from due to the low corporation tax. I'm sure we all know about 'Celtic Tiger'? The standard of living in Ireland hasn't been improved drastically by the Government throwing money at public services, but by the free market.

[Ulster Tory]

Sorry, that should read: "25% is not low enough".

[michael mcgough]

"The standard of living in Ireland hasn't been improved drastically by the Government throwing money at public services, but by the free market."

Conversely the standard of living here has declined and the Government has squandered billions on public services.

[John Coles]

Mr Osborne is timorous. To propose a 3% drop in Corporation Tax is just tinkering at the margins. It is clear that he sees himself as an administrator of the existing tax regime, making a superficial change here, a minor alteration there.
His thinking is patently EU-centric, so he will never make changes that upset the "colleagues" in Brussels. He is a complete lightweight and will be a source of endless disappointment and frustration should he ever become Chancellor.

[Mark Williams]

Osborne is right to criticise the government for the uncompetitive taxation on businesses, but his focus on the rate off corporation tax is only half the story. After all the tax rate used to be higher under the last Conservative gorvernment. That tax rate is only half of the story, the other half being what is included in taxable profits or often what is excluded from the allowable reliefs.

Since 1997 the government has boosted receipts from corporation tax by much more than the rate of increase of GDP. Currently annual receipts are around £50 billion, which at a 28% tax rate would imply taxable profits of around £200 billion. In an economy with a GDP of £1,000 billion this is implausible. The reality is that many companies are being taxed at a far higher rate than 28% of their actual profits, which is why so many are looking to leave the UK.