Wednesday, October 17, 2007

Their Lordships Are Not Amused

Following on from the Des Browne post below, another example of government carelessness with the truth has winged its way to me. During House of Lords questions last Monday, this exchange took place:

Baroness Noakes: My Lords, the Government have belatedly reduced the headline rate of corporation tax to 28 per cent, but that is still only around average for the OECD and has done nothing to restore our international tax competitiveness. Do the Government accept that there are sound arguments for the UK moving to lower rates of corporation tax that will lead to increased yields?
Lord Davies of Oldham: My Lords, I am somewhat surprised that the noble Baroness does not recognise the significance of the reduction in the rate of corporation tax. It makes the British corporation tax rate one of the lowest in the OECD. Only Germany has as low a rate, at 28 per cent. When the rate was 30 per cent, the Opposition clamoured for a reduction. It has now been reduced to 28 per cent, and I would have expected just a little greater generosity from the other side, although I might have been looking in vain.
Readers will, I have no doubt, appreciate the significance of the Treasury Minister's reply namely that, according to OECD figures, it is a palpable falsehood that "only Germany has as low a rate"; rather, fourteen countries have lower rates. Take this extract from an article in The Business in January.

The Austrians cut corporation tax from 34% to 25% in 2005. A week ago,
corporation tax in Holland was cut to 25.5%. Denmark has reduced its tax rate
from 34% to 28%. In Finland it is now only 26%, compared to 29% in 2004. Between 1999 and 2004, the Portuguese reduced their rate from 37.4% to 27.5%.
Corporation tax is also lower in Greece and Luxembourg than in Britain. Even in
those European countries where corporation tax remains higher than in Britain,
the direction is clearly down. In Belgium company tax has fallen from 40.2% to
34%; the Germans slashed theirs from 52% to 38.9% in 2001 and could introduce
additional reductions next year.Last year, the French cut their own corporation
rate from 41.7% to 34.4%; even more depressingly from Britain’s perspective,
President Chirac has just pledged that France will reduce corporation tax to 20%
in five years with the long-term goal of getting it down to 10%.

The upshot is that there is a strong argument that Lord Davies should make a personal statement, apologising for misleading the House. Their Lordships don't like this sort of thing.

In a similar vein, the Conservative Treasury team in the House of Lords is pressing for a debate on the economy this side of the State Opening. Quite apart from the obvious political motivation, there is a practical aspect to this in that historically the House has tended to forgo the PBR/CSR Statement on the basis that it prefers not to engage in knee-jerk responses but favours a more considered debate once the proposals have been subjected to proper analysis. Over the years this practice has been (more or less) studiously observed with an appropriate debate being offered in Government time within a couple of weeks or so of the actual Statement. Indeed, given the current schedule of business in the House, there is ample room for such a slot. However, Sheila Noakes (the Tory front-bench Treasury spokesman) is finding herself being stonewalled on this by the Government business managers. The conclusion one has to draw (pace the - "bottled" - election that never was) is that the Government are 'frit' about the prospect of having their economic policy exposed to proper scrutiny.


Anonymous said...

Corporation Tax.

Here's a question. Which is better for the country? Competing with other countries on tax or competing with other countries on wages?

I know which I'd prefer.

Alex said...

It is a shame that MPs in general do not have a good grasp of the way this government has been fleecing big companies wherever they can. The amount collected from corporation tax has doubled while the rate has gone down. This is nothing to do with the Laffer curve rather, it is companies paying a much higher effective rate. Quite a few large companies are paying corporation tax at an effective rate of 30%-40% on their accounting profits because of various disallowances and rules introduced by this government that mean their taxable profits are considerably higher than their accounting profits.

I even know of one company with a steady £60m turnover, nothing too spectacular, that has got hit with an additional £30m tax bill for this year simply because one of their shareholders sold a 25% interest in the company to another company. It is totally perverse, but it is a direct result of legislation written by fools in the 2006 Finance Act.

Anonymous said...

Ian as far as the french go president Chirac can suggest corporation tax drops to zero but it is only what president Sarkozy says that matters.

Anonymous said...

As Bob Monkhouse put it:

People always say: "You're a comedian, tell us a joke." They don't say: "You're an MP, tell us a lie."

I suppose the point is that some politicians just can't help being slimy little liars.

Clothilde Simon