Swept away on a tide of tax

Companies are exiting the country, saying they fear the government’s new initiatives on foreign profits. Meanwhile, the chancellor is being urged to impose a windfall tax on energy companies’ profits. Something has to give.

The idea of the appropriateness of a windfall tax on energy companies is more of a question for economists than tax advisers, but it, and other moves, amount to a concerted attack on business taxation and behaviour.
To borrow from the Vince Cable phrasebook, a windfall tax would be tantamount to nationalising the profits of the energy companies while privatising the losses.

But what will worry many is that it is merely the beginning of demands from some on the Labour left.
The unions are pressing for a broader crackdown on corporate behaviour, believing companies get away with billions worth of tax avoidance. Not only that, they say, but we should ignore the arguments of those in the business sector who say it is time to reduce the burden of taxation.

The CBI and the Institute of Directors are, to be fair, like broken records in their calls for tax cuts, and their calls should be treated with scepticism. But whatever the merits of those arguments, the pleas of those companies leaving the country do have to be taken seriously.

Just as business drained from New York following the introduction of Sarbanes-Oxley, the UK government is now standing by as its tax system threatens to do the same for the UK. The government needs to think clearly, and radically, to come up with a competitive and equitable tax system for corporates for the 21st century. Otherwise we all face being swept away.

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