Make corporation tax 18%
Mar 11 2008 by Sarah Green, The Journal
A RADICAL overhaul of the UK’s corporate tax system is needed urgently if the country is to regain its status as an internationally competitive location.
The CBI report out this week, UK business tax: a compelling case for change, reveals that the UK has now reached a tipping point.
It makes clear that the advantages the UK gained from cuts to corporation tax during the 1980s and late 1990s have been lost. Other countries have taken bold steps to cut their rate – the Netherlands and Portugal to 25% and Ireland is famously at 12.5%. But the UK’s rate has lagged and is now higher than the OECD average of 26.8%, even after this April’s cut from 30% to 28%.
In terms of the burden of corporate tax, the UK’s effective average tax rate is now the eighth highest in the OECD. Nor is corporation tax the only burden; companies pay £1 in other taxes for every £1 of corporation tax. According to the World Economic Forum, the UK has slipped from 4th place in 1998 to 15th in 2003 on the Global Competitiveness Index.
To tackle this, the report proposes an overhaul of the UK corporate tax system, with a wide-ranging programme of reform to include:
A headline corporation tax rate of 18% within eight years, with the cut more than paying for itself over time through increased economic activity.
Tax calculated on the basis of existing company accounts, scrapping the current system in which firms have to maintain two sets of books. Allow all genuine business expenses to be recognised and replace complicated capital allowances with accounts-based depreciation.
A “no surprises” legislative and administrative process, with more time allowed for proper consultation on tax proposals, better resourced and effective parliamentary scrutiny and limited budget secrecy.
A non-political, independent tax law commission, established to monitor and review tax law and suggest improvements.
Proactive UK government action on all cross-border tax issues, co-ordinating with other governments, including on treaties to assign primary taxing rights.
A simplified and improved tax system to stimulate the growth of small and medium-sized enterprises, with an exemption from rules intended for multinationals, a small firms corporation tax rate brought back to 18% within three years and the SME investment allowance doubled to £100,000.
An 18% business rate within eight years would help restore the UK’s low tax credentials. But a radical shake-up is also vital if clarity, certainty and simplicity are to be reintroduced to the system so firms can plan with confidence and make Britain their long-term home.
We have all seen the to-ing and fro-ing over CGT and non-doms in recent months. Knee-jerk, retrospective change is no way to manage a tax system.
The case for change presented by the CBI Tax Task Force is compelling. The Government needs the confidence to permit a serious, non-political, dialogue about where the business tax regime should be heading, what it needs to achieve, and how we want it to look in 10 years.
Sarah Green is regional director of the CBI
