Friday, March 08, 2013

British government speaks with forked tongue on corporate tax

We have said this before. But let us simply put two statements from the British government next to each other. Prime Minister David Cameron, speaking in Davos recently:
"Any businesses who think that they can carry on dodging that fair share or that they can keep on selling to the UK and setting up ever-more complex tax arrangements abroad to squeeze their tax bill right down. Well, they need to wake up and smell the coffee because the public who buy from them have had enough."
And now David Gauke, Exchequer Secretary to the Treasury, writing in City a.m.:
"We are delivering a bigger set of pro-business tax reforms than our global competitors or predecessors ever managed.
. . .
In three years, the UK has moved from being an also-ran to the most competitive regime in the world, overtaking Ireland, the Netherlands and Switzerland.
. . .
Our approach is also radical by historical standards, even compared to the governments of Margaret Thatcher."
Now that's the issue of forked tongues out of the way. Gauke's article is summarised on twitter:
richard brooks ‏@rbrooks45
Clear admission from gov that UK now corporate tax haven. "Most competitive in world, overtaking Ire, Neth, Switz"
Next, and perhaps more pertinently, Gauke is displaying economically illiteracy. First, tax rates have nothing whatsoever to do with 'competitiveness.' We have written exhaustively about this elsewhere (for instance, see "Popular Myths" here), and will publish more on this soon.

Second, UK Corporations are sitting on hundreds of billions of unused cash, which they are not spending or investing. Cutting corporation will do nothing except reduce the government's ability to spend on urgently needed items, in a country already parched by austerity (which many, such as Martin Wolf, argue is also in itself economically illiterate and boneheaded to boot.) On the folly of cutting corporation taxes, see this, from the LSE, here

Cutting corporate taxes now is exactly, diametrically, the opposite of what this government should be doing.


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