David Prosser: Wolseley's Swiss move threatens the foundations of Chancellor's tax policies
Outlook: Though the worst of the downturn is over and finance directors are returning to such matters, the Chancellorcould be forgiven for feeling betrayed
Tuesday 28 September 2010
The departure of Wolseley, the building materials business, for tax pastures new in Switzerland is a warning shot for George Osborne. Having signed up so many leading business figures in support of his tax policies during the election campaign, the Chancellor showed his gratitude with a business-friendly emergency Budget in June. Just three months later, a FTSE 100 company is decamping to Switzerland.
The saving that Wolseley is making from the move – it would have been £23m this year – is quite small even for the company and minuscule in terms of the total tax take. But if other companies follow suit, the lost revenue will begin to add up, particularly if the quitters are more profitable concerns than Wolseley.
For a time, this sort of move was a major headache for the previous Labour government. But after a half dozen or so companies, from Shire to WPP moved their tax base, the rot seemed to stop. There were several reasons for this: Gordon Brown is thought to have read Footsie bosses the riot act, while also offering concessions on the taxation of foreign profits, the issue that most concerned many companies (and which Wolseley pinpointed again yesterday). The recession, in which companies focused on their survival, rather than managing their tax rate, also played a part.
Though the worst of the downturn is now over and finance directors are returning to such matters, Mr Osborne could be forgiven for feeling betrayed by Wolseley. The Chancellor has already promised corporation tax rate cuts and a further review of the taxation of foreign profits is scheduled for the autumn. Even the abolition of capital allowances, which most accountants expected in order to pay for headline business tax reductions, has so far failed to materialise.
Mr Osborne has, in short, done everything he can to limit the burden of tax on business, even during these straitened fiscal times, and also promised a crackdown on the red tape of regulation, about which many businesses feel even more strongly than tax. The VAT rise will hit certain types of company, notably retailers, but we are still far from uncompetitive compared with the rest of Europe.
Still, while the Chancellor will have to take this one on the chin, it might be wise to get on the phone to his pals in the boardroom, just to remind them which side their bread is buttered. Research published last month suggests one in five large businesses would consider leaving the UK for tax reasons. Idle threats can become dangerous realities very quickly when a head of steam builds up.
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Roll up, roll up, for another round of the great British confidence crisis, as China's Bright Food prepares to make an audacious swoop on one of our favourite companies – and this could be a takeover that will literally take the biscuit.
Anxiety about the suggestion Bright Food is near the top of the list of potential suitors for United Biscuits, the manufacturer of such great British foods as KP Nuts, Twiglets and Jaffa Cakes, is already beginning to mount, despite the award of the prize being some way off.
Still, before concern turns into full-blown anger, Cadbury-style, it's worth remembering a couple of things. First, this is not a hostile takeover, but a sale process being conducted by United Biscuits' owners, the private equity concerns Blackstone and PAI. They, by the way, aren't British themselves – if Bright Foods were to secure this £2bn deal, it would be a transfer of ownership from the US and France to China.
Is United Biscuits a strategic company that we ought to worry about? Hardly. And while one could at least understand the sentimental attachment to Cadbury – the history, the philanthropic connections and so on – United Biscuits is not the same sort of company.
Multinational takeovers and mergers are not going away. Indeed, the British miner BHP Billiton is trying to buy strategic assets in Canada in a deal that makes the sale of United Biscuits look like crumbs from the table. And there will be cases when it makes sense to get upset. But this transaction – even assuming Bright Foods clinches it ahead of competition that may include Britain's Premier Foods – is not one of them.
The choice for shadow Chancellor is clear
Having made their choice for leader, Labour Party members have less of a say in who will be its next shadow chancellor. But if judged purely on economic considerations, the choice would be straightforward: the opposition's top duo would be most credible if they shared a given name, rather than a surname.
Ed Balls should get the post for two reasons: partly because his experience of economic affairs in Government is well ahead of David Miliband's, but more because his campaign for the leadership saw him set out the clearest and best alternative to the deficit reduction plans of the Government. Mr Balls offers an analysis of the economic dangers facing this country that will become ever more relevant.
The International Monetary Fund report published yesterday on the state of the British economy read as if it was dictated down the line from 11 Downing Street. No doubt the Chancellor will have been delighted with the support he received from the Fund's deficit hawks. But the report feels curiously out of date. Its picture of an "economy on the mend" and "unemployment stabilising" was accurate two months ago, but ignores all the more recent data suggesting recovery has already begun to falter and that joblessness is once again rising.
Nor does the IMF make any mention of Ireland, a ghastly vision of how George Osborne's debt reduction plan could turn out: spending cuts that destroy the consumer sector and wreck the recovery altogether.
For Labour, only Mr Balls has voiced these fears coherently, while also presenting his own credible plan for cutting the deficit. Give that man a job.
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