David Prosser: Everyone is in favour of tax reform – just as long as someone else pays

Outlook: The problem is, what businesses really mean when they ask for clarity and simplicity is that they think their tax bills should be lower

The Chancellor is a brave man. When his predecessors in government unveiled reforms to the controlled foreign company rules – which essentially govern the way UK-based multinational companies are taxed here on their overseas earnings – they prompted a revolt among business leaders. Alistair Darling, the former Chancellor, eventually backed down on the revamp, but not before companies such as pharmaceuticals giant Shire had fled to more accommodating tax authorities.

Mr Osborne hopes his attempt to tackle the CFC regime – which he correctly identifies as being hopelessly out of date – will have precisely the opposite effect. The Treasury's consultation documents, which Mr Osborne unveiled yesterday, talk about "improving the UK's tax competitiveness" rather than adopting the language of an authority hoping to put a stop to multinationals playing the system.

But while the consultation is tonally on-message, there isn't yet much detail of what the Chancellor plans. There are some interim reforms that it should be possible to introduce next year, but we will have to wait until 2012 for the full-scale overhaul of CFCs.

It is, of course, quite right to take the time to get this right, by talking to as many of the companies likely to be affected as possible. But all the consultation in the world is not going to get Mr Osborne out of addressing a painful dilemma.

Here's the difficulty: unless the Chancellor is prepared to see the corporation tax take fall – which he isn't – he has to find a way to reform the CFC rules in a way that is broadly revenue neutral. (Well, he could impose reforms that would increase the Treasury's earnings from corporation tax, but that would rather seem to run counter to the aim of the exercise.)

In practice, what that means is that the reform of the CFC rules is likely to create winners and losers. We may well end up with a regime that is both fit for modern purpose and fairer, but it does not follow that this will put a stop to the exodus of companies seeking a better deal in another jurisdiction.

The easiest option would be simply to get rid of the CFC rules lock, stock and barrel. That could be done for the quid pro quo of tougher tax treatment of interest costs in respect of foreign profits. Such an approach is not pain-free, however, since it would be a serious deterrent to inward investment in the UK.

Mr Osborne's problem will be familiar to all Chancellors who have tried to simplify the tax system. What businesses really mean when they ask for clarity and simplicity is that they think their tax bills should be lower. They may be right, but in a fiscally challenging environment someone else has to pay if their wishes are to be granted.

The Chancellor has already trodden this path, announcing in June's emergency Budget that he would lower corporation tax for all businesses over the years ahead, but that the cost of doing so would be met by lower capital allowances. The effect of that reform will indeed be a more equitable tax regime for businesses, but it will also see the manufacturing sector, to which capital allowances are of most use, forced to subsidise a tax cut for everyone else – including the banks. More simplicity achieved, for sure, but with a rather perverse side effect.



BA's cabin crew rain on its Iberian parade

The merger between British Airways and Iberia, signed off by shareholders yesterday, only went ahead after the Spanish airline approved a sensible deal agreed between its new partner and its pension scheme members over how best to address the deficit in their fund. BA's executives should think themselves lucky that Iberia did not also insist on a similar agreement with their cabin crew staff. Within hours of that shareholder vote yesterday, we learned that the on/off dispute between BA and the Unite union – or, more accurately, Bassa, the Unite division that represents the cabin crew staff – is back on again.

In an economy that continues to see a remarkably low number of days lost to strike given the tensions that austerity brings, the BA dispute is a wonderful throw-back for those who enjoy such things. It's also a phenomenal waste of time and energy.

One might have more sympathy for Bassa were it holding out for the principles over which this dispute began more than a year ago. It is not: the row over new working practices and pay has long been settled. No, the bone of contention today is the treatment of cabin crew staff who took strike action. Though Willie Walsh, BA's boss, eventually swallowed his pride and gave the strikers their travel perks back, they apparently aren't getting them restored quickly enough. There is also an argument over the disciplinary action taken against union members that the airline accuses of bullying colleagues during the dispute.

The remarkable thing about the BA saga is that for all the talk about Mr Walsh's hardball approach to outdated labour practices, the union has actually achieved almost all of its aims during this dispute. Now is the time for them to end the argument – or, at the very least, give cabin crew staff the opportunity to vote on BA's most recent proposals before marching them back up the hill towards strike action.

As for Iberia, having spent so long negotiating the complicated regulatory implications of a merger with BA in jurisdictions around the world, it will no doubt be relieved that the deal sees the two airline operations keep their own branding and separate responsibilities for operations. But Spanish executives would be wrong to ignore the British labour dispute altogether: Unite plans to object to efficiencies the merged entity might be planning. As Mr Walsh plans on plenty of them, the cabin crew dispute of 2010 may prove to be just a warm-up.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on Scotland's oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
News
news

PROMOTED VIDEO
Sport
footballThe latest scores and Twitter updates from tonight’s games, featuring Bayern Munich vs Man City and Chelsea vs Schalke
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
News
i100
News
news

Watch this commuter wage a one-man war against the Circle Line
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
Arts and Entertainment
Jack Huston is the new Ben-Hur
film

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959

Extras
10 best table lamps
indybest
Latest stories from i100
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

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week