Ben Chu: The Chancellor's corporation tax con

Economic View

George Osborne was full of tough talk on multinational tax avoidance in the Autumn Statement last month. The Chancellor stood at the Despatch Box and pledged more resources for the taxman to clamp down on abuse by the likes of Starbucks, Google and Amazon. He set Her Majesty's Revenue and Customs (HMRC) a target of raising a further £2bn from such avoiders every year.

Mr Osborne added that he would a clampdown on the use of tax havens an "important priority" when the UK assumed the G8 presidency later this year. What the Chancellor wanted was "a tax system where the richest pay their fair share".

One would be forgiven for assuming on the basis of this rallying battle cry that corporation tax receipts will be rising in the coming years, as Mr Osborne rolls up his sleeves and gets stuck into the tax avoiders of the big business world. But think again.

The predictions from the Chancellor's forecaster, the Office for Budget Responsibility, show the corporation tax take is set to fall in cash terms over the next five years. As the small chart shows, income tax receipts will rise by 35 per cent, from £152.7bn in 2011/12 to £206.5bn in 2017/18.

VAT receipts will rise by 23 per cent, from £98.1bn to £121.5bn. But corporation tax receipts are projected to fall by 0.7 per cent, declining from £43.1bn to £42.8bn between now and 2017/18. As a share of total tax revenues, corporation tax receipts will decline from 7.5 per cent in the present financial year to 5.8 per cent in 2017-18.

Whyis this? There was a clue in the Chancellor's statement when he said: "We want the most competitive corporate tax system of any major economy." Let's drain out the bromide here. What Mr Osborne means is that he wants businesses to pay less in profit taxes here than in any other major economy. And he's delivering on that.

The Chancellor has cut the main rate of corporation tax from 28 per cent in 2010 to 24 per cent. It will fall to 23 per cent this year, dropping to 21 per cent by 2014. That's not all. A "patent box" goes active in April, which will slash to 10 per cent the corporation tax payable by businesses on income derived from intellectual property registered in the UK.

So what's going on? Why is our crusading Chancellor, who claims to have zero tolerance for multinational tax avoidance, cutting rates and hosing down cross-border firms with allowances? The patent box is a particularly strange move because, as the Institute for Fiscal Studies has pointed out, it will do nothing to encourage research to take place in Britain. It's merely a chunky tax break for multinational activity that would have taken place here anyway.

The fact is that the Chancellor, long ago, swallowed the argument of the multinationals and their indefatigable minions in the international accountancy firms that the UK's corporation tax regime under Labour was "uncompetitive" and needed urgent reform. This was always balderdash.

When Mr Osborne entered the Treasury in 2010, the UK's main corporation tax rate was already the lowest of all G7 nations. We were "uncompetitive" in the same way that Usain Bolt is uncompetitive in the 100 metres. And as the left-hand chart above shows we're now opening up a vast gap with our peers.

A number of multinationals including WPP, Shire and United Business Media moved their corporate headquarters overseas in 2008 complaining that they were at risk of "double taxation" on their overseas profits. This was high-grade spin. The truth is that Labour was giving the multinationals precisely what they wanted by moving to a territorial regime, in which only their UK profits, and not profits transferred back to HQ from foreign subsidiaries, would be subject to British corporation tax. These companies left because they were affronted that the previous government was reserving the right to tax multinationals' overseas profits if the taxman determined they had deviously shuffled their UK profits offshore to tax havens. Labour panicked and withdrew the plan. And Mr Osborne, ever eager to curry favour with the multinationals, drove a stake through the heart of the entirely sensible proposal to make sure it was dead.

Actions speak louder than words when it comes to tax. Despite Mr Osborne's anti-avoidance posturing, HMRC staffing levels are being cut under his watch. By 2015 jobs will be down some 44 per cent on 2005 levels. Meanwhile, corporation tax rates are falling and the Treasury is expecting less income. The tax strain of closing the deficit will be borne by labour (income tax) and consumption (VAT) rather than capital.

We should be under no illusions about what the Chancellor is doing. He is trying to attract multinationals to Britain through tax breaks and lower headline rates. This is classic beggar-thy-neighbour behaviour. Tax competition puts downward pressure on corporate profit levies around the world by forcing other nations to match the lowest outliers. If the Chancellor were serious, as he claims to be, about global co-operation to curb tax avoidance he would be pushing for global harmonisation on corporate tax rates and investment allowances, not trying to poach multinationals through lower rates and patent boxes. These are all moves which, in effect, turn the UK into a giant tax haven.

This Government has a strategy on corporate taxation. But let's be perfectly clear. It is not to make multinationals pay more tax, but to participate enthusiastically in a global race to the bottom.

The real economics of the Christmas tree

The economics of Christmas have been a talking point among academics for a while. What utility do we derive from exchanging gifts that recipients often don't want? Would people be better off exchanging cash? Or would that eradicate the intangible emotional benefits of the ritual transfer of wrapped boxes?

But it was the annual disposal of the tree that taught me a valuable economic lesson.

In Christmas 2011 we bought a needle-drop version for what seemed a splendidly reasonable £20 from Homebase. But last year, having left it rather late, we had to fork out for a non-needle drop tree for £35 from one of those men in grubby Santa hats who stand on street corners hawking overpriced stacks of festive timber.

Cue lots of grumbling about inflation and the irksome absence of garden centres in my corner of south London. But I now see I was wrong to complain.

My dominant memory of 5 January 2012 was the hour I spent on my hands and knees vacuuming up the heaps of pine needles that the spindly green monster had shed all over the carpet and hall.

This year, by contrast, we put the tree out for the council without having to break out the dust pan and shovel, so firmly did the needles of our verdant totem cling to the branches.

If someone had offered me £15 to scrabble around for an hour sucking up foliage I wouldn't have taken it. Yet this was the entire "saving" from the previous year's moulting tree.

So what's the economic lesson? Don't just look at the headline costs when making a purchase and be wary of false economies. Either that, or make life even easier by buying a plastic tree.

Life and Style
“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
beauty
PROMOTED VIDEO
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
transfers
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Sport
German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
film
News
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Sport
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
tv
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
News
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
people
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
tech
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
tech
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

BC2

£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Programme Support, Coms, Bristol, £300-350p/d

£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

(Junior) IT Systems Administrator / Infrastructure Analyst

£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

Finance Officer

Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice