On the money with Gavin Hinks

The Tories are already under pressure on their tax policy, and that’s before they even get the keys to numbers 10 and 11 Downing Street.

It seems business has started lobbying the Tories over the issue of tax relief on interest charged on debt. As arcane as that policy might sound it’s pretty significant because essentially interest on corporate debt is tax deductible. This is of course part of the policy that made highly leveraged private equity deals possible.

The Tory policy is, by all accounts, to reduce the tax deductibility and then use the extra money to fund a cut in the headline rate of corporation tax.

Nice move. But it wouldn’t help everyone in business, and it hasn’t exactly been welcomed by everyone. There are those who argue the relief on interest is a selling point for companies wanting to do business in the UK.

What I think is more interesting though is the significance of the Tories being lobbied. The only reason that would happen, and the only reason people would feel strongly enough they would help reporters to publish stories about it, is that there is a belief abroad that the Tories will win the next election and their policies now need to be taken seriously.

Despite their policy being knocked, that’s a victory in itself for the Tory party and for shadow chancellor George Osborne. Business interests could be wrong of course. Gordon Brown might win. But it looks very much like they’re trying to influence Tory policy now.

Funding a cut in corporation tax will help many businesses in a way they understand. But it won’t help big business or the mergers and acquisitions market. The Tories are gambling there are more votes in smaller enterprises that would appreciate a cut in the headline rate. Let’s see what they do if they win.

Gavin Hinks is editor of Accountancy Age