Jeremy Warner's Outlook: Time for a national debate on corporate taxes. Amazingly, the Government is willing

Tricky stuff, corporate taxation. As Labour has discovered, it's a rich source of revenue in the good times which can be steadily raised without apparent damage to electoral prospects or economic prosperity. Yet impose too much of it and business votes with its feet and moves elsewhere. Where would the Government's chances of re-election be if too much business tax ends up poleaxing the wider economy?

Unnerved by the spectacle of two major companies in a fortnight moving offshore, and a third – Sir Martin Sorrell's WPP – threatening to, the Chancellor Alistair Darling announced a new business-government forum yesterday to examine what a modern corporate tax regime should look like and discuss ways in which the tax system can provide multinationals with the long-term certainty and competitiveness they need.

It's easy to see why many business leaders are sceptical. Oh, yes, let's have another review, so as to maintain the pretence that the Government treats the concerns of business seriously while at the same time getting on with the main task of taxing business more heavily still.

Looked at less cynically, the Treasury does appear to be genuinely interested in having a debate about what form of corporate tax system would best suit both the needs of companies and government.

Nobody with a clean sheet would invent the present mess of a corporate tax system. Even seasoned accountants struggle to understand its complexities. Every time Her Majesty's Revenue & Customs sees a potential leakage, it tries to plug it, piling yet more legislation on the existing mind-boggling layers of it.

Corporation tax is a form of double taxation, in that it is levied on the fruits of labour and capital that have already been taxed. In an ideal world, it would be better not to have it at all. Certainly, it would remove tax as an issue of corporate competitiveness.

Yet realistically, we have to accept that it is here to stay. At roughly 10 per cent of total government revenue, corporation tax is not something that could painlessly be replaced. Add in other business taxes, and the proportion is higher still.

The bumper profits announ-ced yesterday by BP and Shell on the back of soaring energy prices might seem obscene to some, yet to the Government they are like manna from heaven. As one lucrative source of tax revenue – the City – dries up, the oil companies show every sign of filling the gap.

Companies and labour are today highly mobile. As a consequence, there is a natural tendency to try to earn profits in jurisdictions where they are likely to be least taxed. How to protect tax revenues from this leakage is a growing problem for governments.

For some multinationals, proposals announced in a discussion document last year in the latest attempt to address the perceived mobility of the tax base were the final straw. The already announced decision of Shire and UBM to re-domicile in Ireland is bound to make others at least consider doing likewise.

Business leaders accuse the Revenue of failing to understand the reality of the global corporation and of attempting to tax profits which are already being taxed elsewhere. The Treasury, by contrast, suspects companies of deliberately organising their affairs so as to escape UK tax on profits earned from intellectual property and the like.

The debate doesn't have to be so confrontational. The Government's concern is to maximise returns from corporation tax. Industry's concern is to maintain a competitive tax regime. The two things are far from incompatible. As Ireland has already realised, a competitive tax regime is in the long run also likely to be a high yielding one.

How to explain HBOS's rights issue

We all know why Royal Bank of Scotland is having a rights issue – its capital cushion is now so threadbare that it barely exists. Yet why is HBOS also calling on shareholders for more money? On the face of it, the capital ratio is already robust enough. Certainly, it is better than that of Barclays, which has said it sees no need for a rights issue.

The £2.9bn writedown announced by HBOS yesterday on American mortgage-backed securities obviously impairs the balance sheet a bit, but as HBOS points out, this is only a "fair value adjustment" to reflect current market prices. The securities in question are not sub-prime mortgage assets. They may, for the time being, be impossible to sell, but on maturity, HBOS should eventually get all its money back.

True enough, HBOS has a relatively gloomy view of the economic outlook, with growth this year expected to fall to between 1.25 and 1.5 per cent and mid-single digit falls in house prices for the next two years predicted. Yet in HBOS's estimation, it would require a much more serious economic deterioration than this to prompt a dangerous erosion in capital. Even at a level of default as high as that of the early 1990s, HBOS still looks robust enough to come through without need for more capital.

No, the real explanation is that HBOS wants to reposition itself as one of Europe's safest and most copper-bottomed banks. To be seen as such, it has to have more capital than it needs. Return on equity will shrink from previously inflated levels, but it should also be less volatile and give scope for eventual renewal in balance sheet growth.

Where less than a year ago the priority among bankers was to be capital lean, they now want to be seen as capital rich. Shares in Barclays have begun to trade at a discount to its peers. Even the stock market, it seems, wants to reward safety before risk.

The man who saved us from Sar-Ox

Anyone who knew him would have been hugely saddened to learn of the death of Sir Derek Higgs, who for many years was head of corporate finance at SG Warburg. He was one of the last of the City old school, a passionate believer in the value of independent advice and a combative defender of his clients' interests.

The tirade of criticism Sir Derek received from the City and business for the Higgs code of conduct on corporate governance, a series of rules governing boardroom Britain that was introduced in the wake of the Enron and Marconi collapses, was personally very hurtful to him, but he was also able to take comfort in the knowledge that it was fundamentally the right thing to have done. Many of his most vocal critics were those whose shareholders would most have benefited from his reforms, yet the idea that the review was no more than a "box-tickers' charter" somehow gained more traction than its more benign interpretation.

"Look," he once told me, "I don't like regulation any more than the next guy, but this is the least worse response to the problem we could have come up with. The alternative would have been the imposition by the Government of a full-blown legislative approach to corporate governance failings. The opprobrium I'm getting is, I guess, a small price to pay for having saved the City from Sarbanes-Oxley."

That's not a bad epitaph – the man who saved corporate Britain from Sarbanes-Oxley. Since Sir Derek wrote his review, the fin-ancial cycle has moved from bust to boom and now back to bust again. With memories of Enron overshadowed by today's even more spectacular market failures, Sir Derek's code – routinely ignored in recent years – has never been more relevant.

Ah, but it didn't prevent the avarice-driven madness of bankers or the collapse of Northern Rock, some will say. Maybe not, but think of how much worse it might have been with no constraints on the chief executive at all.