Business allies rally to Brown in row over tax exodus

Jean-Pierre Garnier, the chief executive of the world's fourth biggest pharmaceutical group, GlaxoSmithKline, offered respite to the beleaguered Government yesterday, saying that his company does not intend to join the exodus of those leaving the UK for lighter taxes in Ireland.

Mr Garnier, an ally of Gordon Brown and a member of the Prime Minister's Business Council for Britain, said that the Government was listening to industry concerns over taxation. "We have no plans to leave the UK," he said. "We are very confident that the Government is listening to business and hearing what it takes to compete globally. The Prime Minister understands globalisation." The Business Council for Britain, established by Mr Brown when he was chancellor, advises on industrial policy.

GSK's position is starkly different to others in the pharmaceutical sector. Shire, the UK's third biggest drugs company, announced last month that it plans to change its tax domicile from the UK to the Republic of Ireland, as Dublin offers an "optimum" tax location. AstraZeneca has also refused to rule out a move away from the UK. UK corporation tax is 28 per cent, compared with 12.5 per cent in Ireland.

Mr Garnier, who steps down as chief executive of GSK on 22 May, said he thinks that those moving now are doing so prematurely. "I am optimistic that the Government will be able to generate an increasingly favourable [business] environment," he said. GSK's support of the Government's tax policies is also notable given the record of Jan Leschly, the chief executive of a GSK forerunner, SmithKline Beecham, as a passionate campaigner for lower business taxes.

The confectionery giant Cadbury also said it would not leave Britain, although Ken Hanna, the finance director of the newly demerged business, said that he was "very supportive" of those that had. EasyJet's founder, Stelios Haji-Ioannou, said his company had never considered moving, not least because of the difficulties of relocating more than 500 staff. But he said he believed it was "unfair" that its bitter rival Ryanair enjoys a significant tax advantage from being located in Ireland.

A report published by Ernst & Young two months ago warned that "the UK corporate tax rate is being usurped by other locations despite the forthcoming cut in the main corporate tax rate".

The CBI has long campaigned on the issue, arguing that Britain has been progressively slipping down the international competitiveness league table. The CBI's director general, Richard Lambert, said: "Firms are seriously concerned about the high level and rising complexity of taxation in the UK and are increasingly prepared to vote with their feet."

Mr Lambert said he was pleased that the Treasury had "recognised this" with its announcement of a forum on corporate tax – of which he will be a member. But he added: "What will be important is the action it takes as a result to develop a clear, internationally competitive corporate tax strategy for the UK." The CBI's chief economist, Ian McCafferty, said: "In most years of the last decade tax receipts from corporation tax have undershot Treasury expectations. If action is not taken, then that revenue will continue to dwindle.

"Tax did once make Britain an attractive place to do business, even with the difficulties with transport and infrastructure, which haven't improved much. But that competitive advantage is no longer there." Mr McCafferty said the CBI expected more companies to move away, in addition to those that have announced plans to move or which have said they are considering moving. They include United Business Media, WPP, Yahoo!, Kraft, eBay, Hiscox, Omega, Experian/GUS and Shell.

A Treasury spokesman said: "The Government has done a lot in the last decade to strengthen the competitiveness of the UK tax system, including cutting the headline rate of corporation tax to the lowest in the G7. Between 1997 and 2006 nearly 400 companies chose to locate their headquarters in London – more than twice as many as chose Paris, Dublin, Amsterdam and Frankfurt put together."