CBI calls for major overhaul of business tax system

Tax cut could boost revenue by £15bn a year. City's confidence in Chancellor plummets

The Confederation of British Industry has stepped up pressure from business on the Chancellor ahead of his first Budget by calling for a major overhaul of corporate tax.

The CBI's Tax Task Force says in a report today that rising taxes and globalisation mean that the UK has lost the advantages it had gained from cuts to corporation tax in the 1980s and late1990s. The panel of tax experts recommends a cut in the headline rate of corporate tax from 28 per cent to 18 per cent within eight years.

The Task Force, chaired by Charles Alexander, the chairman of GE Capital Europe, said the cut would cost the Exchequer between £300m and £4.2bn in each of the first seven years. But it calculated that Government revenues would be boosted by an average of £15.6bn annually from years eight to 12. The CBI also recommended simplification of company taxation, scrapping the current system that requires businesses to maintain two sets of books.

Following controversial decisions on capital gains tax and the treatment of overseas income for non-domiciled residents, the report called for a "no-surprises" legislative process with proper consultation and a "non-political" tax law commission to monitor tax law.

Richard Lambert, the director general of the CBI, said: "[The Government] needs to have the confidence to permit a serious, non-political dialogue about where the business tax regime should be heading, what it needs to achieve, and what we want it to look like in 10 years' time.

"A clear Government road map should follow, setting out the route to reform so business can plan with certainty."

The report said that a country's tax system plays a greater part in a company's decision about where to base itself or invest because businesses are now more global and mobile. The number of multinational companies has doubled to about 77,000 since 1990 and technology has made it easier for small companies to go global, it said.

The CBI was supported by a report from the accountancy firm Ernst & Young, which said Britain was in danger of being left behind as countries such as China, the Czech Republic and Germany cut their rate of corporation tax. As a place for investment, the UK has fallen to sixth from fourth in 2004 as India and Russia have overtaken it and Poland has drawn level, the survey said.

But the Trades Union Congress opposes the CBI proposals, saying companies would be taxed at a lower rate than individuals. Brendan Barber, TUC general secretary, said: "The CBI is calling for both much lower rates of corporation tax and for a huge increase in opportunities for big businesses and the super-rich to avoid paying their fair share of tax. If its lobbying was to succeed it would lead to tax hikes for ordinary people, damaging cuts to public services and abandoning Government commitments on child poverty."

The Chancellor, Alistair Darling, is under fire from the business lobby for his proposals to tax non-doms. After watering down the proposals earlier this year, he is set to announce further concessions, including a revision to the criterion for non-residents spending a day in the UK, where a day is counted if the person spends midnight in Britain, and a doubling of the limit to £2,000 for unremitted income allowed for tax purposes. The change will make it less likely that lower-income non-doms such as Polish plumbers would be caught by the new rules.

There is also likely to be relief for United States citizen non-doms with the announcement of an agreement with the US authorities so that the £30,000 charge in the UK will be allowable against their US tax bills.

Further pressure will be heaped on the Chancellor ahead of Wednesday's budget by a survey that shows City confidence in his stewardship plummeting. The Cantos City Panel survey shows that eight out of 10 City investors and managers do not think Mr Darling should stay in his post because of his handling of capital gains tax, non-doms and the Northern Rock affair.

The survey says that 59 per cent of respondents believed Mr Darling will be out of his job in the next 12 months.