There has been a lot of talk about Fair Tax and
self-appointed parties have even persuaded an august professional
institute to buy into their plan. It sounds a bit like clothing
manufacturers getting the Woolmark (remember that) for a fee of
course. The Woolmark was a guarantee of Merino wool. A Fair Tax Mark
would be no guarantee of anything.
The question is, what level of tax is fair? We are
talking about corporation (company) tax of course. All the
criticism, mainly aimed at multinational companies, is about the
level of corporation tax they pay. Now it is true that they might
have more flexibility than smaller businesses to arrange to pay a
lower level of corporation tax in the UK by transferring profit to
other jurisdictions.
At the same time, there are rules on transfer pricing which apply to large companies and in which HMRC take a keen
interest. All businesses need to reinvest, and to encourage this
there are quite generous allowances against tax that can be claimed
(because the Treasury wants them to) which means that taxable profit
might be lower than accounting profit.
However, I do not want to get too technical. I
will leave that to others. The government is reducing the main
rate of corporation tax to 20% on taxable profit for all companies,
large and small, from 1st April 2015. The previous
administration was also intent on reducing the rate, and that is
because Government perceives that with a low tax regime on profits,
overseas businesses will want to invest more in the UK. It all makes
sense to me.
My next point is one already made by Ben Saunders
who has helpfully extracted from HMRC's accounts for 2012-13 the
following figures which show that corporation tax is only the fourth
largest revenue raiser anyway:
- Income tax – £150.9bn
- National Insurance – £101.7bn
- VAT – £101bn
- Corporation tax – £39.2bn
Do read Ben's piece, in which he points out that
in the UK, most businesses are not companies anyway.
So the Government does not regard raising money
through corporation tax as their biggest priority, and there is a
reason for this quite apart from the question of competing for
business against foreign competition. That reason is that corporation
tax is not the only tax that companies pay.
Who actually pays all the income tax recovered
under PAYE from company employees? It is the companies that employ
them. Who pays the National Insurance? The employees think they pay
their share, because it in on their payslips, but actually it comes
out of company bank accounts.
Therefore it is ridiculous to have a measure of
one tax to be regarded as “fair” and to ignore all the other tax
revenue generated.
We can take this one step further. Large companies
as well as small ones and other businesses contribute to raising the
level of employment. In fact in the UK there are more people employed
than there have ever been before. If people are employed they are
drawing far less in benefits and therefore saving the Treasury even
more money which they would have to cough up if those employees had
no work and were sitting at home.
Do not talk to me about Fair Tax. The economy is
very complicated, and the tax regime as a whole is a sort of steering
mechanism. It is crude and sometimes not very responsive, but to
extract one element is disingenuous, particularly where that element
of potential low tax on profits is an important attraction for
investment.
