{"id":25301,"date":"2014-06-30T07:30:39","date_gmt":"2014-06-30T06:30:39","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=25301"},"modified":"2014-06-30T09:49:50","modified_gmt":"2014-06-30T08:49:50","slug":"has-labour-been-knocked-out-on-penalties-when-it-comes-to-tax","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2014\/06\/30\/has-labour-been-knocked-out-on-penalties-when-it-comes-to-tax\/","title":{"rendered":"Has Ed Balls got a cunning plan on tax?"},"content":{"rendered":"

I was willing and able to welcome the \u00a0the \u00a0announcements that Labour made on tax on Saturday<\/a>. \u00a0They made sense, \u00a0took it in the right direction and \u00a0reflected what might be called genuine left of centre thinking.<\/p>\n

This morning there will be considerable doubts amongst many Labour supporters \u00a0concerning the further announcements on tax that Ed Balls will make in a speech this morning. To summarise what we know right now<\/a> there are three \u00a0elements to this second raft of proposals.<\/p>\n

The first is to cancel the\u00a0proposed cut in corporation tax for large companies from 21% to 20% next year. \u00a0This proposal has been specifically made to finance a freeze in business rates for smaller, UK-based, companies. I welcome that.<\/p>\n

Second, \u00a0there is a commitment to \u00a0ensure that the UK continues to have the lowest rate of corporation tax in the G7. \u00a0That is a rhetoric that sounds worrying to someone like me, \u00a0but right now the next lowest rate is 26.5%. \u00a0In practice this commitment means that Labour has got \u00a0plenty of scope to increase corporation tax rates \u00a0for larger companies if it wishes because whilst overall trends in corporation tax rates are downward the very clear evidence that recent changes in the UK tax regime have not attracted new foreign direct investment <\/a>can offer little \u00a0encouragement to other countries to follow the current government's course. Ed Balls \u00a0has adopted Tory rhetoric here but it is by no means clear that he has adopted Tory plans.<\/p>\n

Thirdly, Ed Balls is looking at\u00a0an \u201callowance for corporate equity\u201d as part of reforms to encourage more long-term attitudes in business. \u00a0I admit that this one does cause me concern. \u00a0There can be no doubt that the UK's very generous tax relief for interest paid by companies has been significantly \u00a0abused. \u00a0We have seen takeovers of football clubs, like Manchester United, \u00a0funded almost entirely by debt which has been loaded onto the companies themselves, with the result that massive tax subsidies have been given to the buyers. The same is true of \u00a0mainstream companies. Indeed, this is \u00a0the whole allegation about \u00a0tax avoidance at Boots. \u00a0What worries me about the approach that Ed Balls \u00a0is looking at is that instead of tackling this abuse it seeks to give an equivalent tax allowance to those companies that fund their activities using shareholder money instead of borrowings.<\/p>\n

I have three problems with this approach. \u00a0Firstly, \u00a0it does not tackle the problem of \u00a0excessive debt funding or the tax relief given upon it. \u00a0Secondly, \u00a0it simply creates another corporate tax giveaway, and big business has enjoyed a whole raft of these over recent years meaning that this is the one sector of the economy as a whole that has enjoyed tax cuts. Thirdly, \u00a0this is another arrangement that favours big business over small enterprise. \u00a0No small company has significant shareholder funds \u00a0so this relief is going to leave them almost unaffected \u00a0whereas large companies do, however much their debt, tend to have a significant value of shareholder funds. \u00a0That means they're bound to get this tax relief, so upsetting the balance between small and large business yet again, \u00a0with the bias being, once more, against small business.<\/p>\n

I look forward to reading this speech in detail - and I have not seen an advance copy. Right now \u00a0I am lukewarm about the way these announcements have been pitched. \u00a0They may \u00a0be clever positioning that gives away nothing. \u00a0They could be indication of a worrying trend. As \u00a0I said on Saturday, the devil is in the detail. \u00a0We will have to see how that pans out.<\/p>\n","protected":false},"excerpt":{"rendered":"

I was willing and able to welcome the \u00a0the \u00a0announcements that Labour made on tax on Saturday. \u00a0They made sense, \u00a0took it in the right
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