Big thinkers take on tax

It is because accountancy has only recently become a ‘graduate’ profession that taxation’s place in our universities has been relegated to somewhat below stairs status. What, after all, is vaguely intellectual about bean counting, one can imagine Dons indignantly asking themselves in the senior common room.

But Oxford’s bold initiative to open a centre for business taxation, that will focus on taxation policies and policy options affecting business in the UK, is hugely overdue. It is incomprehensible that the subject of tax has taken so long to attract the attention of big thinkers.

The debate has been limited to the relative merits of a low or a high basic rate of corporate and personal tax and which generates their highest yield, since Hayek and Freidman first espoused the low rate/high yield argument. Thirty years on, however, after demonstration by the Reagan and Thatcher administrations of the soundness of the theory we find our own government urged to increase rates again to finance huge increases in public spending.

But the political and economic arguments for and against are virtually bereft of rigorous analysis at a macro level to help inform the debate. And absolutely nothing has been done to take an overview of the myriad indirect taxes to assess their impact on the wider economy.

Oxford’s new centre might also want to consider a cost/benefit analysis to the economy of how the proceeds of tax have been spent by the government, a must if we want to remove political considerations from decision-making in this area and, in a similar way to Gordon Brown’s decision to give power to set interest rates to the Bank of England.

Oxford should also analyse international comparisons and the economic effect of low corporate tax rates on countries such as Ireland and Switzerland to find out exactly how this translates into higher levels of growth. There is valuable work to be done. Let’s hope Oxford’s research improves the quality of the debate on fiscal policy and that policymakers sit up and take notice.

Jonathan Ivinson is European head of tax at law firm Hogan & Hartson

...for all the wrong reasons

Tax is seriously under-represented as a subject for study at UK universities. And when it is, it is too often looked at as a technical issue. As such, Oxford University’s new business taxation centre and its intention to address the policy dimensions of taxation is welcome.

But only in part, because as was apparent at the launch event, the centre is funded by members of the FTSE 100. And as Professor Colin Mayer, one of the two academics responsible for the Centre made clear, the issue of real concern to the centre is tax as it affects the competitiveness of big business in the UK.

This is unacceptable for two reasons. Firstly, it assumes that there is such a thing as beneficial tax competition, and the economic theory that supports such an idea is of dubious validity. Secondly, it suggests that all other issues are secondary to that one, which is of primary concern only to 100 or so companies all told in the UK, and who represent well under 30% of UK economic activity. A university such as Oxford should work without such pre-conditions.

If this centre is to be of use, it has to broaden its scope. Large business tax policy is too constrained an issue to be studied in isolation. Other businesses should be considered as well. Business taxation policy only makes sense within a broader range of fiscal issues, so the whole range of taxes and the interactions between them have to be considered.

More importantly, though, business taxation is not just a tax issue. It has significant social and economic dimensions concerning how wealth creation might be promoted and how the rewards might be best shared. In addition, issues such as governance, accountability and corporate responsibility now feature prominently on the tax agenda and there was little indication that these are of real concern to the centre.

Oxford should look at tax, but only if it is to retain its academic credibility whilst doing so, within this much broader context. Only time will tell if it can move beyond the constraints of its funding and do just that.

Richard Murphy is senior tax adviser to the Tax Justice Network