Press Room
Grant Thornton offers a blueprint for the future of UK
tax competitiveness
13 March 2007
Today Grant Thornton, the leading business and financial advisers,
offers a blueprint for the future of UK tax competitiveness and
urge the Government to acknowledge that the current corporate tax
regime is strangling many inward investment opportunities for UK
plc. In their study Grant Thornton recognise that the UK is in a
state of corporate flux with many UK plcs making noises about
quitting their home country for locations abroad, while major
multinationals reject the UK as a location from which to run their
operations. It is becoming increasingly obvious that the UK's
complex and expensive tax system is getting in the way of
competition.
Rob Withecombe, Head of Tax at Grant Thornton, comments "The UK has
a high corporate tax rate when compared with the other European
countries. Other countries have responded to the challenge of
competition by bringing down corporate tax rates in order to
attract business. You only have to look at Ireland to see how a
government has turned the economy around and made it into one of
the most successful financial centres in the world."
Government and business need to work better together to produce a
more productive environment. In his 2006 Budget speech Gordon Brown
stated that the UK has a "corporate tax system that we will
continue to discuss with business and keep internationally
competitive". But Francesca Lagerberg, Head of Grant Thornton's
National Tax Office remarks "Corporates have not been at the top of
Gordon Brown's priorities while he has been Chancellor. Perhaps
this Budget can be his final hoorah, and an opportunity to let
people be entrepreneurs rather than to regulate them out of
existence, or to send them packing to other more tax-friendly
jurisdictions."
Despite this, the UK has some very worthy points. The UK is a less
bureaucratic place to do business that France, Germany or Italy.
The UK has also avoided the regulatory overload that has left the
US with excessive regulatory burdens, high costs and little gain.
Indeed the UK has been an unlikely beneficiary of the Enron
collapse and the Sarbanes-Oxley Act as the Alternative Investment
Market (AIM) has flourished.
Francesca Lagerberg continues, "Many of the smaller entrepreneurial
companies that would otherwise list on NASDAQ have opted for the
much cheaper and more lightly regulated AIM exchange. Today it
describes itself as the most successful growth market in the world.
Maintaining that edge means maintaining the market's current
tax-favoured position to draw in growth businesses from both the UK
and overseas. To compromise that with more tax hikes or greater
regulation would be to compromise the UK's competitiveness."
In the report, Grant Thornton's Chief Economist Stephen Gifford,
examines in detail the economic outlook for the UK over the next 12
months and outlines that the firms' expectations for economic
growth is 2.7% growth for 2007, slightly above the 2.5% consensus
forecast but below the lower end of the Treasury growth predictions
of between 2.75% and 3.25% for this year. The report also
investigates public finances and concludes that the improving
economic climate has strengthened these. Grant Thornton are also of
the opinion that the fiscal rules are likely to be met in coming
years and there will be more focus on the extent to which the Bank
of England can successfully tackle escalating inflation. It can
only do this by increasing interest rates and, thereby, impacting
future prospects for growth.
Joy Svasti-Salee, Grant Thornton's Head of International Tax
identifies different elements for a corporate tax system that is
fair to both business and government, and puts forward a list of
suggestions that would help to make the UK a more attractive
location. She identifies that the controlled foreign company (CFC)
rules are harsher in the UK than any other country, the UK practice
for taxation of dividends is complex and out of sync with the rest
of Europe.
Heather Self, a partner at Grant Thornton, outlines how Government,
Her Majesty's Revenue & Customs (HMRC) and business all need to
work together to ensure that the UK does not lose its competitive
edge. The Government has to recognise that by attracting more
businesses to the UK, the tax revenues will rise. HMRC has to
identify and rectify anomalies in legislation and business and
their advisers need to engage more fully in the debate, and to
quote Gordon Brown from his Budget speech in 2006, this will help
to build the UK into "a modern Britain which leads on enterprise
and prosperity, because we lead in opportunity and fairness."
The report concludes with two case studies which examine how the
AIM market and Northern Ireland have both become attractive to
investors and businesses and have flourished under new regulations
and tax legislation.
The perfect opportunity to resolve many of these issues and move
forward is the "Review of Links with Large Business" being
conducted by David Varney. It promises greater dialogue with HMRC
and to give corporates more certainty from their business
decisions. Rob Withecombe concludes, "This dialogue is critical as
the sums at stake are hugely significant. It's an opportunity to
engage in mature debate; for corporates to go to HMRC and present
their plans, to establish what is and is not acceptable and to
understand the likely tax consequences."