Friday, 1 April 2011

Osborne's Corporation Tax cut - a huge cost to the UK, with little benefit

When Osborne proudly announced that the government would be squandering what little money it has chosen to spend on a cut in Corporation Tax, he was supposedly bolstered by the announcement from advertising firm WPP that it was to relocate its head office back to the UK in response, having jumped ship to Ireland a few years earlier.

This, Osborne could now claim, justified his surrendering of billions of pounds of revenue to fund  reductions in the tax. He could now dust off and wheel out the classic neo-liberal line that lower tax rates on businesses always increase revenue by encouraging investment (and by discouraging companies from relocating abroad).

However, there are two problems with this story. The first concerns WPP and second the wisdom of cutting UK corporate taxes.

First, lets take WPP. It's announcement was met with gleeful back-slapping amongst Osborne and his friends at the Treasury. However, its press statements omit a central fact: WPP's head office is Ireland barely qualifies for the term - it's almost non-existent in fact, with what appears to be a measly eight employees. It's original 'relocation' to Dublin has, unsurprisingly, been described as a 'tax dodge'.

In other words, relocating its head office back to London, where it already houses its far, far more employees, will make no discernible effect. Accountancy Age backs up this view, describing the tax cuts as "a £6.7bn gamble to attract businesses to the UK".

Secondly, what about cutting UK Corporation Tax? Well, this was already, before the current Chancellor had his seat at the Treasury, the lowest amongst the G7.  Furthermore, there is evidence - provided by the Treasury itself -  that very few companies actually relocated for tax reasons since 2007/08. And, amongst those that did, their tactic was often to relocate in name, but actually then continue to retain a significant staff presence in the UK.

The fact is that George Osborne has, in the face of huge spending cuts to frontline services that will affect millions of British people, handed billions to some of the largest multinational corporations on the planet - and potentially for absolutely no benefit.

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