This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
'The report provides invaluable evidence for us to draw on in shaping tax policy', explains the Financial Secretary to the Treasury.
I am delighted to be joining you here today for the launch of PwC’s 2014 Total Tax Contribution Report.
As I said in my video message, I think this report is a very useful reminder of the important economic role played by the businesses here today.
Along with the PWC Paying Taxes survey published last week, it provides invaluable evidence for us to draw on in shaping tax policy.
Tax has always been crucial to how our businesses and our economies run.
And tax is something people have an opinion on – and they’re not afraid to express it!
Especially when it is about the eternally fascinating subject of how much other people and organisations pay.
So, in a time when tax is arguably a higher-profile issue than ever before, it’s important that the policy debate is as informed as possible.
For example, some people see corporation tax as a tax on large faceless corporations – abstract and slightly malign entities. And it’s very easy to tap into a certain narrative about “big bad multinationals”.
That would be to forget one vital thing. The cost of corporation tax is borne by a combination of shareholders, employees and the customer.
Higher corporation tax tends to lead to a combination of higher prices, lower wages and lower shareholder returns.
Everybody is affected in some way.
It’s for this reason there is a broad consensus that CT is one of the most distortive and growth damaging taxes.
As the OECD have said: “Corporate income taxes are the most harmful for growth as they discourage the activities of firms that are most important for growth: investment in capital and productivity improvements.”
So it is no surprise that in the past couple of decades we have seen countries across the world cut their corporation tax rates.
Globally, the long-term trend is clear:
the Paying Taxes survey shows a decrease in the global average total tax rate from 53% in 2004 to 42% in 2013
no G7 country has increased Corporation Tax since 1997
closer to home, the last time the UK increased the rate of corporation tax was back in the 1960s
The paying taxes survey suggests that globally, cuts in profit taxes have plateaued slightly since 2010.
This is unsurprising given the fiscal challenges most governments have faced since the financial crisis.
But on competitiveness, while other countries may have paused, the UK has progressed.
Since 2010 we have delivered record reductions in corporation tax.
The rate has been cut from 28% to 21%.
Next year it will be 20%, the lowest rate ever in the UK, the joint lowest rate in the G20.
We did this to support and accelerate the recovery – as part of a broad programme of measures designed to get the growth and investment this country needs.
It’s been a central part of the government’s long term economic plan. And that plan is undoubtedly working.
The UK is forecast to be the fastest growing major advanced economy this year.
The latest figures we have show business investment increasing 11% in the space of 12 months.
And employment is at record levels.
If you compare the UK to other countries which have not shown our appetite for structural reform or our focus on improving competitiveness, I think you can see some clear economic lessons.
Over 2014 and 2015, the UK is forecast by the IMF to grow over four times as fast as France – and twice as fast as even Germany!
In France, unemployment has remained at just over 10% since late 2012 and has crept upwards earlier this year – in contrast to the UK, where it is down to around 6%.
The government recognises that we’re operating in a highly globalised economy, where businesses, capital and labour are extremely mobile.
And in such an environment, tax competition is inevitable.
Countries will compete with each other to attract investment.
And talented individuals will quite rightly shop around for the best environment in which to live and work.
So we have taken great strides to make the UK more competitive and better equipped for the global race.
And we are seeing the results.
But we know that any competition needs to be fair.
The UK government wants an international system with fair rules that ensures all companies pay their share – a system where it isn’t possible for a company to play one country off against another so it pays barely any corporation tax at all.
Delivering this requires action at an international level.
The Paying Taxes study reports that nearly two thirds of CEOs around the world say the international tax system is in urgent need of reform.
We agree. That’s why we’ve taken a lead role so far on the international stage through the Base Erosion and Profit Shifting – or BEPS – project.
This project marks a huge opportunity to reform the international tax rules so they are fit for the 21st Century.
And – most importantly of all – it gives us a chance to create international rules the public can have confidence in.
So I am pleased with the way BEPS is progressing – it’s an important step towards a fairer and fitter international tax system.
Going back to the surveys, there are two final points I would like to make.
First, we know the burden borne by business goes beyond corporation tax, and differs from sector to sector.
The Tax Contribution report illustrates this very well, and it is something we are alive to as a government.
But we are committed to listening to businesses, hearing what works, what doesn’t, and having a conversation about how we can become even more competitive.
At Autumn Statement last year, businesses told us their biggest concern was business rates.
We listened, and we launched a £1 billion Business Rates package with particular help for the retail sector.
At Budget this year, meanwhile, businesses told us their greatest concern was energy prices.
Again, we listened, and launched a £7 billion package of measures to reduce energy costs for households and businesses, which included specific support for energy intensive industries.
We are a listening government – and where necessary we will act.
The second point I would like to make is this: we still have a long way to go.
The report shows how your tax contributions roughly mirror the trajectory of the economy.
So although we are making good progress, we should not forget that the economy has only just recovered to pre-crisis levels.
The fiscal position remains challenging.
We have seen weaknesses in some of our major sectors – the report mentions, for instance, how tax receipts from the oil and gas sector, which are always volatile, have fallen rapidly in the past two years.
So over the coming years the government will need to continue to focus relentlessly on tackling the deficit and driving economic growth.
Your businesses, the jobs and investment you provide, the sales and activity you generate, and the taxes you pay, will have a major role to play in securing this growth.
For our part, we will continue to make sure that you have as competitive an environment as possible in which to succeed.