UK tax competitiveness hype branded 'misleading'

Reports on the competitiveness of the UK tax system that have been wheeled out lately have become almost as ubiquitous as cricketer auto-biographies after the 2005 Ashes.

It seems that no-one can resist pulling together some numbers on why the UK tax system is at a 'tipping point' and requires urgent reform to ensure that the UK remains an attractive place to do business.

Ernst & Young, The Institute of Directors, the Confederation of British Industry, Grant Thornton and others have all released such studies in the lead up to the Budget. The arguments in each of these reports have carried a similar ring.

The whole lot claim that the UK corporation tax rate of 30% is too high and that the local system has become too complex. This was driving business away to other jurisdictions such as Ireland and Luxembourg, where tax regimes were friendlier.

The question is whether these reports offer a genuine reflection of tax competitiveness or amount to nothing more than business groups lobbying for an easier ride.

One person adamant that the latter is the case is Richard Murphy, head of Tax Research Limited. On the issue of the corporation tax rate, Murphy said it was misleading to compare the UK to smaller states.

‘The Netherlands and Ireland have low tax rates, but their populations are tiny when compared to the UK. There is not the same opportunity in such countries to run real economic activity. The money taxed is not earned there, it is generated elsewhere and then moved,’ Murphy said.

He added that the business infrastructure in countries with low tax rates was generally inferior to that of the UK, and that the UK rate was in line with countries such as Germany, Spain and the United States.

On the question of complexity, Murphy said businesses were complex organisations used to executing detailed transactions. The complexity of the system was there to provide business with options to pursue different types of finance.