Leading article: A competitive edge that Britain needs to preserve

It would be easy to dismiss Sir Martin Sorrell's warning as no more than a predictable piece of self-interested brinkmanship. And there may be an element of that. But his threat to move the headquarters of WPP, the world's second-largest advertising company, out of the United Kingdom for tax reasons needs to be taken seriously. For Sir Martin is not alone in talking about relocation.

In recent weeks, similar noises have been made by other major companies. And two of them – the pharmaceuticals giant Shire, and the publisher United Business Media – have already announced moves to Ireland. There they will pay a rate of 12.5 per cent, compared with 28 per cent in the UK, which is, by any standards, a substantial difference. Shire – which stands to cut its tax bill by more than half – is the first FTSE-100 company to be leaving the UK purely for tax reasons.

There is another consideration, too, which is the one that preoccupies Sir Martin. Under new rules to be introduced by the Treasury, UK-based companies will have to pay tax in the UK on dividends earned abroad. Any arrangements they might have had to minimise their tax liability in Britain by, for instance, shifting income between subsidiaries, will thus be rendered null and void – which, of course, is part of the rationale. And although ministers insist that other tax changes will offset the losses, WPP is one of many to complain that the new regime would threaten profitability.

Tax rates are not the only consideration in a company's decision about whether to stay or move. For many companies there is a certain cachet attached to being based in Britain. There is a sense of solidity here, as well as confidence that rules are respected and courts are fair. International transport links are comprehensive, communications are good and London is one of the most cosmopolitan cities in the world.

There may come a point, however, where the sums do not add up, and the trickle of companies now openly considering an alternative suggests that Britain may be losing its competitive edge. This would be a serious blow – among so many others – to the former chancellor and now Prime Minister, Gordon Brown. When the New Labour government came to power 11 years ago, Britain's reputation as a good and profitable place to do business was something it was intent on keeping. Hence the repeated pledges to keep taxes low; hence the pledges on upholding the free market; hence independence for the Bank of England.

Over the past few years, however, many high-tax countries – especially in Europe – have quietly reduced rates to make themselves competitive and slashed red tape for business. Increasingly, too, perceptions about quality of life have entered the equation. Internationally, the sense has grown that Britain is an expensive place to live and work; that its infrastructure leaves much to be desired; and that it has some catching up to do on the environment. Recent troubles at Heathrow airport have done the UK's standing no favours.

It is in response to the concerns of company chief executives that Gordon Brown has set up a tax review – a delaying tactic if ever there was one. But difficult decisions may lie ahead – at a time when the overall economic climate makes it particularly difficult to make them. Britain's international competitiveness has been the reason why, the Government insists, we have nothing to fear from globalisation. If, however, it turns out that big corporations are not crying wolf and Britain really is lagging behind, then our corporate tax regime may need another look. That would be far preferable to a retreat into protectionism. Then indeed that trickle of threatened departures could become a flood.