The FT published a letter on Monday asking for more tax competition. It seems it thinks itself duty bound to do so about once every three month. I won't reproduce it. They all have the same themes:
1) UK business pays too much tax;
2) The UK is out of line on tax rates;
3) If only tax was cut UK business would be more innovative;
4) Then we'd all be better off.
This argument is absurd. Point (1) is at best subjective. Point (2) is not true when effective rates are considered (and frankly, UK business is hardly overtaxed at headline rates. There is then a complete logical failure in the argument, which cannot move from (2) to (3). And the same logic failure is true of the move from point (3) to (4).
As usual, John Christensen and I were irritated by this nonsense, and so penned a quick response. This was published in the FT today and is reproduced below. Perhaps the key sentence is the last one. We believe in business, but in business that adds real value to society, and does not just trade in fiscal rules.
Business will not be happy until it is free of any tax obligation
By John Christensen and Richard Murphy
Published: September 19 2006 03:00 | Last updated: September 19 2006 03:00
From Mr John Christensen and Mr Richard Murphy.
Sir,
We are bombarded daily with calls from industry for tax cuts (Letters, September 18) and increased tax competition even
though the evidence suggests the effective tax rate in Britain is well below the headline rate.
We support competition, but think business should compete on the basis of innovation and the quality and price competitiveness of its products, rather than continually looking for state subsidy - direct and indirect - to create a "competitive" environment. Tax competition has forced many developing countries to undermine their revenue bases in their efforts to attract inward investment with no benefit to anyone other than shareholders overseas. Throughout the world we see a shift of the tax burden from capital to labour and consumers.
It is time the issue of tax competition was examined afresh since it is quite clear business will not be happy until we reach the stage where it pays no tax. That might suit some in business, but for the economy as a whole it makes no sense. Worse still, it would distract from the role of enterprise - which is adding real value, not trading fiscal rules.
John Christensen and Richard Murphy,
Tax Justice Network - UK,
London SE11 5NH
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[…] Richard Murphy posts claims from business that it is paying to much tax. These claims apply to NZ as well as the UK. Quoting him and changing the UK to NZ: 1) NZ business pays too much tax; 2) The NZ is out of line on tax rates; 3) If only tax was cut NZ business would be more innovative; 4) Then we’d all be better off. […]
I would like to pick up on point three of the tax slashers argument, that if British business’s paid less tax they could be more innovative.
The newly knighted Sir Philip Green is obviously a truley innovative businessman, otherwise he would not have been knighted.
Green pays no personal income tax, as income from his businees is paid to his wife who just happens to live in zero tax land (Monaco), £1.2 billion last year ((which exceeds their companies profits (more innovation)). Never mind HMRC will get corporate tax? No, no, no, Green’s companies are registered in Jersey, therefore he pays no corporate tax either. I estimate that the Green family rob HMRC of apporximatly £115 million a year. I think that the Green family are innovative enough!!!
Personally Richard I do feel we are taxed heavily here in the UK. Now the operative word is ‘feel’ and I think that is the problem.
Our taxes are in my opinion not spent wisely; we keep paying more (direct and indirect) and getting less for our money.
Ensuring everyone pays what is due would be a good start to collecting the full tax take from all and in turn a move towards a reduction in actual tax rates, but, this is only part of the problem, the way the tax take is spent is also an issue.
If any commercial company operated in the same was as the government and all its departments then that commercial company would go out of business very quickly. This and future governments need to address how it’s ‘corporation’ spends its money!
So,
1) Does UK business pay too much tax – Probably not it just feels like we do.
2) Is the UK out of line on tax rates – Other countries have higher tax rates, Australia for instance has a higher personal tax rate of 47%.
3) If tax was cut UK business would be more innovative – I am not sure why tax cuts would have an impact on innovation, after all innovation is surely something that is unaffected by the regime around it through its very nature.
4) We’d all be better off – Well with lower taxes yes we would have more money in our pocket before we buy goods and services.
But as I have said many times before, collecting the correct tax take will surely result in lower tax rates going forward, depending on how this tax take is spent!
Chris says Green’s company is located in Jersey and hence pay not tax. While no doubt some inter company arrangement exist, to say BHS, Burton, Mother care that has physical estalbishment in UK pay no UK CT is just factually incorrect. And also the VAT which would otherwise did not exist. How about the employer NI, business rates etc.
He probably should pay is 30%… but saying he paid none is just incorrect.
Steven is right. Green does pay tax in the UK.
Equally, there can be no doubt he also avoids substantial liabilities in the UK (although he says he does not do that either as they were never due – but that’s just playing semantics).
On the ‘notorious’ dividend he paid I estimated he saved £285 million of tax for the BBC Money programme. That’s enough to pay for 350 UK primary schools for a year.
Green and his companies do pay indirect taxation, but seems not to pay direct taxation on personal income or corporate tax.
It is because of people like Green and their whis to avoid / evade their codified tax liabilities that indidirect taxation has to increase. Therefore, penalising the lower socio-economic classes.
Your statement
“On the ‘notorious’ dividend he paid I estimated he saved
£285 million of tax for the BBC Money programme. That’s
enough to pay for 350 UK primary schools for a year.”
demonstrates your clear prejudice. We all know that UK primary schools for dear little children only account for a tiny fraction of the taxes extorted from demoralized workers and business owners.
198,000 British people left the UK in 2005, up from 60,000 in 2000. (Institute for Public Policy Research: Mapping the scale and nature of British emigration.) How many of those choose a better life and better living standards outside the discredited Stalinist economics of the UK and how many moved to places which offered an even greater opportunity to contribute more of their hard earned money for ignorant politicians to squander and provide inflated salaries and pensions for civil servants? Not many. The destinations are known and very few went to Scandinavia.
Why should one person pay the costs of 350 primary schools? Perhaps you believe that Mr Green has 100,000 children!
In 2005, Shell moved its joint HQ from London to the Netherlands. No doubt they thought taxes in the UK were too low and they jumped at the chance to pay more overseas.
Sadly, the UK is hopelessly uncompetitive internationally, in tax, living standards, housing costs, the cost of goods, road congestion and the risk and fear of crime.
You say that business should not complain about the headline tax rates, as effective rates are much lower. If this is the case, why have a high headline rate? Why not a simple, low rate without the myriad of allowances, credits, deductions etc?
If the role of enterprise is to add real value, then why not have a tax system that enables business to spend as little as possible on accountants and tax lawyers?
The answer, of course, is that the complexity of the tax system, on both business and individuals, serves the politicians’ desire for social control and as a tool for electioneering and party fundraising, and it is also a great make-work scheme for HMRC and the accountants and tax lawyers.
Final point: you note the “shift of the tax burden from capital to labour and consumers”. If tax competition is so fierce between countries, why is the tax burden (as % of GDP) so much higher in most OECD countries than it was say 40 years ago?
Ed completely misses the point.
The ballot box is about choices on tax. Capital has no role in that process: mobile capital absolutely none at all.
You haven’t answered my questions. Did we (the people) actually vote for the complicated mess that is our current tax system? Does the nature of the system serve the interests of the people, or of the politicians and those who have bought favour with them?
Would we all not be better off with a simpler system, that forced government itself to “compete on the basis of innovation and the quality and price competitiveness of its products”?
To answer your specific point in message 9: if capital does not have a vote at the ballot box, why should it pay any tax?
Ed
Answer (1) – yes, cumulatively
Answer (2) – yes, it serves the interests of the people better than any alternative currently available – although I’ve made lots of recommendations that could improve it
Answer (3) – Yes a simpler system would be better but emphatically not for the reasons you note which incorporates fallacious logic
Answer (4) – because it is owned by people who do vote and have opinion e.g. Bono
Richard
Thank goodness for tax competition! And competition for social systems in general. If there’s no diversity, then there’s no way of people being able to observe and identify better ways of managing the way we live.
I don’t have a problem with socialism – just don’t drag me into it. Taxation is taking *my* money by coercion, and while I can see that there are benefits to be had by all by having good government (which costs money), it sickens me to see that your whole site seems devoted to the assumption that higher tax revenues will make for better society.
I suspect that the reason Communism failed was that they didn’t manage to achieve worldwide adoption of communist principles. So people could look at the alternatives, see that they yielded better results, and they then voted (or marched) accordingly.
Michael
If you want the market view of this, why confuse belief in fair and open markets with either communism or socialism?
Tax is always, in market theory, an aberation. Bets therefore that it is controlled rather than be competed over. The aberation will always be worse in the latte case.
And, if you want the view of the law abiding citizen on this, why on earth do you think money you owe to someone else under a logally binding obligation is yours? It isn’t.
And nor is this site devoted to the idea that higher taxes will always produce a better society. In some cases it will. In many it won’t. But having all pay the tax that they owe will undoubtedly produce a better society. That is beyond question. And that is what this site promotes.
Richard
In many fields, the USA is the UK’s biggest competitor. They speak English, they can and do export to every English speaking market. They also have a huge home market compared to the UK that provides the resources for them to sell effectively in Continental Europe.
Almost everything about the UK is uncompetitive with the USA. Houses more than three times the price when you consider the actual cost of the home, the interest rate and the US tax deduction on the mortgage. Cars are half the price and less still when you consider the tax deduction on the loans. Gasoline is one third the price, indeed nearer one fifth of the price when you consider after tax and National Insurance income. Poor people in both countries get free health care – rich people pay for their health care insurance in pretax dollars – whereas rich people in the UK pay huge subsidy to the NHS and then have to buy medical insurance after tax and NI thereby doubling the cost. They could choose to wait in line with all comers for scare NHS resources, but we all know that medical survival rates in the USA are hugely superior to those in the NHS.
The idea that TAX rates in the UK are competitive is pure wishful thinking and not based on any kind of rational analysis of the facts.
I run a business in the UK, the USA and several other countries. My British employees who relocated to the USA pay 10% to 18% of their income in Federal and State taxes and FICA compared to 50% paid by similar UK based staff. When you visit their homes, you can see that British people working for our company in the USA earning at the current exchange rate less than in the UK have a massively higher material standard of living.
I went to a meeting of the local British American Chamber of commerce in the USA. There was a party held after the meeting and the number of people who expressed real fear at the thought that they may have to return to the UK for one reason or another was shocking. Since 1990 Conservative and then New Labour Governments have just added misery upon misery to the UK middle classes extorting money hand over fist to buy votes from state employees and those feeding on the benefit system.
Personal tax, 5% stamp duty on houses massive inflated by restrictive planning rules and open borders and paid with after tax income are all burdens unknown in the USA.
I would not want you to think everything is perfect in the USA. The IRS has draconian powers and there are many other countries with far better tax regimes. Until recently, the capital gains tax in the UK was competitive, but of course the Treasury wants to destroy that advantage.
However, in my opinion, the fact that our biggest English speaking competitor has a massive tax and cost advantage, shows your claim that the UK TAX rates are competitive to be hubris.
I must take issue with your claim
“why on earth do you think money you owe to someone else under a legally binding obligation is yours? It isn’t.”
The fact that a bunch of people had the chance to pass laws and regulations to extort money from me and others to buy votes and to pay themselves parliamentary salaries and inflated expenses that most could never obtain with real work while squandering our heritage, depleting our industrial capability and making life miserable for the poor simply can never make the money I earn theirs. It is robbery fraudulently dressed up as a moral obligation.
I allowed Paul Rogers comment onto the site as there is nothing offensive about it, per se
Except that it’s almost entirely wrong
The US has a vastly higher corproation tax rate than the UK
Personal taxes vary enormously by State, and aren’t always as he decribes
Very few people in the UK py marginal tax near 50% – it’s virtually impossible to do so. Effective tax rates – alll taxes considered do not exceed 32%
And the poor do not have free health care in the US – and their health outcomes are worse than some developing countries. Which is sickening in a country so concerned about the ‘right to life’.
The UK health system is cheaper than the US’.
I could go on.
But the point is this: in the UK we care about community. In the US they care about self. I know where I’d rather live.
Richard
“But the point is this: in the UK we care about community. In the US they care about self. I know where I’d rather live.”
Maybe they care about both?
“And the poor do not have free health care in the US – and their health outcomes are worse than some developing countries. Which is sickening in a country so concerned about the ‘right to life’.”
Can see both sides of the abortion debate, but fail to see how a belief in ‘right to life’ is sickening.
You miss my point.
If they believe in the ‘right to life’ they should provide universal health care, was my point
They don’t. So I doubt their conviction.