What should the UK do about companies and tax?
Recently, the British public seems to have woken up to the fact that companies such as Starbucks, Microsoft and Google aren’t paying “their fair share” of corporation tax in the UK. However, I feel that they are doing this without knowing the law, resulting in a series of unfair attacks that could set a dangerous precedent that could lead to serious issues, with companies scared away from doing business in the UK.
At first glance, it might seem that these companies are ripping the country off, taking our money and then giving the cash to shareholders. While the average person might believe that they do this, it’s simply not true. To start with, these companies provide jobs for the British economy and provide other types of tax revenue, in the form of business rates, employee national insurance contributions and other things. Far from being a negative thing, these businesses provide a lot of things that this country needs. At the end of the day, having these companies in the UK, providing jobs, is much better than not having them at all. Companies like Google and Microsoft provide a lot of high-end jobs, as well as neutering other smaller startups in London, making a big contribution. If they can help to form the next Apple, whose iPhone 5 will contribute 0.5% of US GDP Growth in Q4, it would be a massive benefit. If these companies got so annoyed that they suddenly left, our economy would be in much bigger trouble.
It’s not just the public, with UK businesses, such as John Lewis, complaining as well. The boss of John Lewis claimed that companies, such as Amazon, using these schemes to avoid UK tax could lead to them putting UK firms out of business, able to have lower margins and undercut British companies. While this might be true, I think it’s important to note that a far bigger issue concerns Amazon. In this case, the company has failed to make a profit for some time, even recently making a small loss. Investors don’t seem to mind, preferring that the company continues with loss-leaders such as the Kindle Fire. With this in mind, companies like John Lewis aren’t on a level playing field anyway, up against a company that doesn’t care about making a profit, meaning that tax is pretty irrelevant.
It’s true that these companies are certainly paying or using loopholes to reduce the tax they pay, a lot of it is to do with agreements in place through the European Union. These laws allow companies to locate in one country and trade in the rest of the Union, while paying tax in their “home country”. Of course, under this scheme, they will pick the location with the lowest tax rate. So, in order to counteract this, the UK needs to either drop corporation tax or leave the EU. Leaving the EU would give the UK greater control, but it wouldn’t be a perfect solution, since the UK would then join EFTA or other schemes which could possibly allow this to continue. Therefore, the UK needs to drop the corporation tax rates. George Osborne has made progress with this, announcing that in 2014 the rate will be 21%, but I propose that the country goes one step further, and abolishes corporation tax. This might seem crazy at first, but I believe that by attracting other companies to the UK, the UK would actually be better off. AON, a big American Insurance company, recently moved its Global HQ to London due to lower tax rates when compared to Chicago, bringing with it rental of a prime London skyscraper and high-paid, tax paying jobs. Moves like this would offset the loss in corporation tax through capital gains tax, dividend taxes and income taxes.
The UK economy is currently stumbling along and annoying businesses isn’t the right move. With their big cash balances, we need their investment to help us get back into growth. Recent public backlash is a result of them being ill-informed and as an extension of the Occupy movement, just plain stupid. Truly radical and possibly the best policy would be to get rid of corporation tax and not blame tax code and legislation for companies “not paying their fair share”.