Outlook: Businesses' share of the tax burden
Thursday 29 January 1998
Although complaining about higher taxes amounting to pounds 22bn during the lifetime of this Parliament - mainly due to the abolition of the dividend tax credit, the CBI's main gripe was about the abolition of ACT and switch to quarterly payments for mainstream corporation tax. It doesn't like the blow to corporate cash flow. And it wants more smallish businesses to be cushioned from the burden by not having to switch to quarterly tax payments, not just those with sales of pounds 300,000 or less as the Treasury proposes.
The point about reduced cash flow, which could hit investment spending for four years, is correct but overlooks the fact that lower corporation tax rates will over time compensate for it. This argument boils down to a natural suspicion of jam tomorrow in return for cash upfront in the business community.
However, the CBI is on stronger ground in saying the Government has opted for too low a cut-off in its definition of "small" businesses. There are 353,000 companies with turnover below the pounds 300,000 cut-off. There are only another 16,000 with turnover between that and pounds 1.5m, but many of these are growing fast and rapidly progress into the ranks of "big" companies. It would cost little in foregone tax revenue and save on administration to exempt these two from the quarterly system. After all, just 39,000 businesses pay 85 per cent of all corporation tax.
On the CBI's broader point, it is true that taxes on business are climbing. So are taxes that fall directly on individuals, through higher excise duties, "green" taxes and reduced reliefs for mortgages and profit-related pay. The tax burden faced by British business remains among the lowest in the developed world. If the industrialists approve of Gordon Brown's tough fiscal policies - which they do - they must in their hearts accept that business has to shoulder at least some of the burden of setting the public finances in order again.
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