I quietly despair

Posted on

I despair of Gordon Brown. Yesterday he promised to cut corporation tax further, to follow up Alastair Darling's promise of a corporation tax review the day before. Both have been offered in an attempt to stop UK companies moving abroad. Speaking to the Institute of Directors he said:

Our aim, I tell you, is to reduce corporation tax even further when we can afford to do so. I want to go further and we're looking at how we can do it.

But this is sheer folly. Shire paid £1 million in UK taxes in seven years to 2006. UBM paid £5 million in tax in the world in 2006. Two companies that are basically not paying tax are leaving the UK. And Brown and Darling offer to change the whole tax system and cut rates as a result. The contrast to their reaction to the 10p tax fiasco could not be more marked.

Leave aside the politics. What sort of reaction is this? Is it logical, especially when it is appreciated that 26% at best of Shire's trade is in the UK anyway and only 7% of Shire's? These are marginally British companies who can quite easily claim that adoption of another domicile is appropriate for their purposes. And let's be realistic: the City will not lose; they're staying UK listed. Not a British job will be lost. I suspect they will even remain audited in the UK. That's inevitable, since this is where their operational headquarters are to remain.

So, speaking purely economically some very marginal 'customers' of the UK are leaving because they can secure an alternative deal in other places. And they have contributed almost nothing to the UK before departure. But despite that Brown and Darling capitulate and offer all other companies a tax cut to keep those who had no intention of leaving, no ability to leave and no desire to do so. Those who are staying must be laughing all the way to the bank. It's almost as if I called Tescos and said I'm transferring my business to the Coop unless you cut all your prices, and for the sake of retaining my weekly spend they respond by cutting their prices for everyone. I kid you not, that's how ludicrous this reaction is.

The fact is that anyone who has run a real company will tell you some business is worth losing to keep the core business and the revenues it generates strong. Brown and Darling seem not to realise that. It's as if some very basic lessons in economics and commercial reality have passed them by.

What they need to be doing is to decide on what they wish to compete, tax rates or tax base. You can't do both or you are in a race to the bottom. If it's rates then we join the EU Common Consolidated Corporate Tax Base. Then rate competition is explicit. Alternatively, make the base the grounds for competition. But right now they're trying to do both. There are two guaranteed consequences of that. The first is a loss of sovereign control of taxes. This is very obviously happening as business runs rings round the Treasury. The second is that the tax burden is shifted from capital onto ordinary people. That's why 5 million people earnings less than £18,000 a year were facing tax increases, and some will still suffer them.

Brown and Darling have to make a choice. Right now they're not. They're simply surrendering. And that's the one option I'd quietly suggest that indicates that they've really lost all control of this argument. They have to reclaim that, now, for the sake of us all.