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Mr Osborne hopes his attempt to tackle the CFC regime – which he correctly identifies as being hopelessly out of date – will have precisely the opposite effect.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.

Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'