From the time that the current government came into power corporation tax reform has been one of their key objectives. The result has been a cut in the tax rate from 28 % to 21% now with 20% to follow, and a cut in the tax base, meaning that whole swathes of income have fallen out of the scope of the tax. The latter process has created a territorial tax system for the UK. The aim was unambiguous. As the government said of this policy:
The Government wants to send out the signal loud and clear that Britain is open for business.
We must do all we can to support a private sector recovery. The UK is an open economy and many of the best known businesses in the world are located in the UK, generating growth, creating jobs and making a significant contribution to the public finances. We want to see those businesses grow strongly over the coming years, and attract new ones to join them.
In recent years too many businesses have left the UK amid concerns over tax competitiveness.
It's time to reverse this trend. Our tax system was once viewed as an asset. And it needs to be an asset again.
In that context it is interesting to note a report in the FT this morning that says:
Foreign direct investment into Britain fell 19 per cent last year to $37bn despite a 9 per cent rise in global flows to $1.45tn, according to the World Investment Report from the UN Conference on Trade and Development (Unctad).
The open door has not been an attractive invitation. The tax cuts have not lured business.
The policy appears to be an outright failure. Far from attracting more money, less money has come than before. But the cost has been enormous. I have estimated that this policy of tax rate and tax base cuts may cost the UK up to £10 billion a year.
In that case this has to be seen as either an outright failure of government policy or, alternatively, as part of a deliberate exercise to make big business better off at the expense of the rest of us. Another explanation is hard to find.
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Tom Bergin of Reuters have provided an even more damning expose of the failures of the corporate tax reform. Sadly, Ed Balls and Labour have failed to call out Osborne on this.
http://www.reuters.com/article/2014/06/09/britain-usa-tax-idUSL6N0OK1UK20140609?feedType=RSS&feedName=everything&virtualBrandChannel=11563
From the FT piece:
“Unctad officials said the drop in inflows to the UK, which saw it slip from ninth to 11th place, was largely caused by UK affiliates of overseas companies lending money to their parents, possibly as part of tax optimisation schemes.”
Might have been worth mentioning, don’t you think?
You mean to highlight the abuse?
Or perhaps as an explanation for why inward FDI fell. For that is the reason that UNCTAD themselves give for it.
Not tax rates….
No, maybe not, just tax base
All part of the same failed Osborne plan
Which was what I was saying
The only real way of attracting foreign investment (do we really want to, though?) is either for the government to deficit spend (or create the money through QE) and spend massively on internal investment on infrastructure, transport and manufacturing.
Big business rarely wants a risky environment to put their money into. The government has to get the economy going first through investment, as China and Brazil have done.
A national investment bank designed for this purpose would be a good idea.
If internal devaluation brought riches, Romania would be one of the richest countries in the world right now.
Richard
Could you explain the “abuse” you highlight in your comment at 10:33am.
Abuse of the UK tax system through arbitraging against other states
It’s the sort of thing the whole OECD BEPS project is about
Maybe you have not noticed