This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Exchequer Secretary to the Treasury speaks on international tax competitiveness.
I’ve been asked to speak this afternoon about international tax competitiveness, and how the UK’s system fares against our international competitors. And in some respects, I’m actually the worst person in the room to ask about that.
Because in a global business environment, it isn’t politicians – even those politicians like me, who are responsible for national tax policies – that make the ultimate call about which tax systems are the most competitive or the most attractive. It’s businesses like yours, and you vote with your feet.
But what I can talk about, is the efforts that this government has made over the last four years to ensure that when multinationals are looking for a place to locate their headquarters. Or when entrepreneurs are looking for a place to start their new businesses, then this country is a place they consider…
And since we came to office, we’ve been working towards achieving those goals in two main areas:
- by making our own tax system as competitive as possible
- by taking action to reform international tax rules – so international tax competition takes place in a fair environment
In short, we want a tax system that is simple, competitive and fair; and supports economic growth and investment.
Now, I know we’ve got a lot of tax experts in the room, so I won’t regurgitate of all the changes we’ve made in great detail.
But since 2010 we’ve cut corporation tax from 28% to 21%. And this time next year it will fall again, to just 20%.
To spur innovation, we’ve introduced the Patent Box and the ‘above the line’ tax credit for Research and Development.
- we’ve modernised our Controlled Foreign Company (CFC) regime
- we’ve cultivated a generous environment for oil and gas exploration
- we’re supporting the creative sector through a number of targeted tax reliefs
And at the Budget last month, we announced further tax incentives to support business, by:
- doubling the Annual Investment Allowance
- increasing the R&D credit for innovative companies
- overhauling the UK Export Finance direct lending programme
It is not just about the competitive tax rates, reliefs and allowances.
How we make tax law is important. In 2010, we published a Corporate Tax Roadmap, setting out what we were going to do and also, perhaps more importantly, explaining what we were not going to do.
We have also established a new tax policy-making process, ensuring proper consultation and the early publication of draft legislation – enabling us to refine and improve our legislation.
And the importance of tax administration can be under-estimated.
We recognise that our tax administrators need to understand major taxpayers.
We’ve made sure that the largest two thousand corporations in the UK have their own dedicated relationship managers at Her Majesty’s Revenue and Customs, who can support those organisations and help to ensure that they are paying the correct amount of tax.
And that system exists, because it’s in everyone’s interests to have a strong working relationship that will ensure revenues are paid fully, and that any disputes or queries can be played out quickly without expensive litigation.
This is not about being a soft touch. Tough action is taken wherever necessary. But a constructive relationship built on trust between the taxpayer and the tax collector continues to bring in the revenue for the UK exchequer and add to the attractiveness of the UK system.
But – as I said before – we’ll only know if those policies are working if we see that they’re encouraging companies to move here, or stay here, or expand here.
And every week new companies are announcing moves to the UK. In the past month alone we’ve seen a range of announcements from major firms moving headquarters to the UK or unveiling new investment projects here. Firms like Siemens, Hitachi Rail, Brit Insurance and Proteus Digital Health have all made very positive announcements in the past few weeks…
And business surveys too reflect the positive impact of the corporate tax reforms.
for the past two years the UK has ranked highest in the KPMG survey on international tax competitiveness
in an HMRC survey earlier this year, 9 in 10 businesses said the corporation tax cuts had been good for the UK’s competitive position
and when I manage to escape Westminster during Parliamentary recess, and get around the globe to persuade people of the merits of our tax system, I’m constantly met with a receptive audience
Just last week in fact, I had some very constructive talks with companies in New York and Boston and Chicago, which I hope will lead to further investment on our shores…
More broadly, the tax reforms are a central plank of our economic strategy. And that strategy is working:
- the IMF say the UK will grow faster than any other G7 economy this year
- employment is at record levels
- business confidence is high
- and business investment is forecast to grow rapidly
Fairness and BEPS
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 of that action.
But – as I said previously – we also know that any competition needs to be fair. The UK government wants an international system with simple and fair rules that ensures all companies pay their share. And that will require action at an international level.
We shouldn’t really be surprised that the current international tax rules need reforming. They were first developed nearly 100 years ago. And we need to change them… yes, so they continue to support free trade and ensure a level playing field for businesses. But also to address weaknesses where – for example – multinationals can use cross-border business structures or finance transactions that exploit differences between two countries’ tax rules.
So driving forward reform on the international stage is another priority area for the UK.
And it’s for that reason that we’ve taken a lead role so far on the international stage through the Base Erosion and Profit Shifting – or BEPS – project that seeks to address tax avoidance.
It’s for that reason too, that we’ll continue to work through the G20 and OECD – on the digital economy, on coherence, on substance and on transparency – to make sure that this area is properly reformed.
I’ll be very happy for you to ask me more detailed questions on that work during our Q&A, but I want to be very clear on two things.
First, the BEPS project is not about bashing business.
Many in the business community acknowledge that in some cases the international tax rules have failed to keep pace with globalisation…
And those businesses recognise that we need to work together so that those tax rules can support sustainable cross border trade and investment.
And second, if reform in this area is to be effective, it needs to be multilateral.
Unilateral or uncoordinated actions by governments in isolation could result in either double taxation or double non-taxation.
So we recognise that this is an international problem, and that it requires an international solution. And we will be taking forward work at an international level.
And although any change will involve uncertainties and compromises, the direction of travel in the BEPS process suggests that there is a big prize available.
Most observers believe that there will be a stronger link between economic substance and tax.
As the sixth largest economy in the world, we have the skills base, infrastructure and cultural diversity you would expect. We are somewhere people want to be.
But, and this is unusual for such a country, we offer a competitive tax system. Not as a haven, not as a location for brass plates. But as somewhere to locate jobs and investment.
So the UK government believes in a low corporation tax rate.
We believe in a simple system that taxes profits in the UK.
And we believe in good working relationships between companies and tax officials, where aggressive behaviour is clamped down on.
In the 4 years since I first walked through the doors of the Treasury, I’m confident that this government has taken the right decisions to create a competitive tax system that encourages growth and investment.
Do I believe that our work is done?
The truth is that businesses have choices. Last week in Chicago, I met a tax director for a multinational which operates in 80 countries. If that business wishes to expand its operations, it has got up to 80 options.
If a country is to ensure that, as often as possible, it is chosen as the place for further investment, it has to make a compelling case. We must constantly ask ourselves, are we making that compelling case?
And I believe that our case grows stronger by the month.
I believe we are on course to creating a tax system that is fairer, more competitive and more robust.
And I believe that now isn’t the time to reverse the progress made. But to stick to the course that we’ve set out.
As I said at the outset though, it’s ultimately up to businesses to decide just how competitive the system I’ve described is, so I’ll look forward to hearing the views of everyone on the panel, and – no doubt – a few of you in the audience too, as to whether you agree.