FTSE directors warn on surge in corporate tax

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The UK's 100 largest quoted companies have seen their tax bills leap 16 per cent on average over the past year, heightening fears that an increasing number of British businesses will move their headquarters abroad during 2007.

According to a report published by The Hundred Group - an association of the FTSE 100's finance directors - the amount of tax paid by UK companies has risen 15.6 per cent over the past year, with FTSE 100 companies bolstering the Treasury's coffers by more than £19bn.

Although part of the absolute increase in taxes can be attributed to rises in company profits, the average FTSE 100 company saw its earnings rise by only 11 per cent in 2006. Total receipts of corporation tax increased by almost 23 per cent over the year.

The report also revealed that companies saw sharp increases in fuel duties in 2006, due to the rises in the oil price. In total, FTSE 100 companies paid almost £1.2bn in fuel duties over the year, an increase of more than 50 per cent on the previous year. The amount of stamp duty paid also increased by almost 38 per cent due to an increase in transactional activity.

Philip Broadley, chairman of The Hundred Group and finance director of Prudential, said it was clear from the statistics that the amount of tax being paid by FTSE 100 companies was increasing.

"In total, the UK is still a relatively low-cost place to do business," he said. "But this survey suggests there may be a trend upwards. It's not for companies to decide what the correct corporate tax rates are. But it should be recognised that business is mobile when it comes to investment decisions about where capital should be employed."

John Whiting, a partner at PricewaterhouseCoopers, which compiled the report, added it should be recognised that the business tax burden is not limited to corporation tax. For every £1 paid in corporation tax, FTSE 100 companies pay another £1 in other direct and indirect taxes. Mr Broadley said the group also managed another £3.70 in tax revenues (such as VAT and National Insurance) on behalf of the Government, for no additional reward.

A number of high-profile companies in the UK have moved their headquarters abroad over the past few years. This month, the US food company Kraft, which owns Kenco and Toblerone, announced it was moving its European headquarters from the UK to Switzerland. Credit-rating experts Experian moved to Dublin when it demerged from GUS last year. HSBC also threatened to move its domicile out of the UK last year, while a number of insurers have either moved or said they are considering a transfer to Bermuda.

A report published by the CBI at the end of last year revealed that seven out of 10 FTSE 350 directors believe the UK's corporate tax regime has deteriorated since 2001, claiming that the country is losing its competitiveness.

"Our members do see this as a very important issue," said Richard Lambert, the director general of the CBI. "My sense is that tax is only one consideration that businesses have when considering their location, but ... in a world where capital is more mobile than it used to be, it's an important one.

"Business tax rates across Europe have, on average, been falling over the past half a dozen years, in quite a substantial way, accelerated by the arrival of EU accession states whose corporate tax rates are less than 20 per cent. Members realise there's not much room for manoeuvre, but the trend in the UK is upwards, and we think there should at least be a signal from the Government that that trend is coming to an end, and will be reversed over time."

Aspokesman for the Treasury refuted the claim that Britain was losing its competitiveness: He said: "The UK has one of the most competitive business climates in the world, and this government has reduced corporation tax to its lowest-ever rate. The UK is one of the most stable economies in the world, with low burdens on business, making the UK an attractive location for businesses. As data released by Ernst & Young last year showed, the UK continues to top global investment league tables, and is the prime destination for foreign direct investment."

The Government is reviewing the UK corporate tax regime. The Chancellor, Gordon Brown, held a meeting with business leaders in October, and has scheduled another for May this year. Lord Levene, the chairman of the Lloyd's of London insurance market, is leading a taskforce to look more specifically at the taxation of insurers. Hiscox and Omega Underwriting followed Catlin last year, announcing that they would be moving their domicile to Bermuda.