View from City Road: Fine words produce little solace

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The Independent Online
If Kenneth Clark meant what he said at Guildhall about supporting British industry, the new Chancellor should look again at the changes to advance corporation tax announced by his predecessor, Norman Lamont, in his last Budget.

These were produced after years of lobbying by manufacturers such as Pilkington, Trafalgar House and BAT Industries. The changes were initially welcomed as a much-needed boost for beleaguered industry, hammered by three years of recession.

But gradually these companies have realised that the benefits will be far smaller than they expected. After studying the available papers, many of them have already decided that they will not use the facility of foreign income dividends promised for the Finance Bill.

In a paper that welcomed the ACT changes as a boost to London's competitiveness as a financial centre, Chris Higson and Jamie Elliott, of London Business School, have rubbed salt in the wounds of British manufacturers by pointing out that foreign-owned companies - including banks in the City - will gain more than UK manufacturers.

Mr Higson said: 'The benefit to the industrial base will be far smaller than to financial services and overseas companies.' This is because FIDS will benefit only investors who pay tax, and most UK companies are majority owned by pension funds, which are exempt.

The irony of a government handing out tax bonuses to American and Japanese banks threatening to move their European headquarters to Amsterdam or Brussels while British manufacturers such as Pilkington pay out more of their profits in tax should not be lost on the Opposition. With the notable exception of export credits, John Major's fine words on industry have been no more than that. We still wait for actions.