Hint of future tax reductions welcomed but won’t quell uncertainty

Chancellor Jeremy Hunt’s indication of future tax cuts will be welcomed by UK businesses but it will not supress any uncertainty, according to Nicola Campbell, partner at Azets.

Speaking recently at the British Chambers of Commerce’s (BCC) annual conference, Hunt said: “What I would say to people worried about levels of taxation is: I agree with that, we have to get our taxes down, particularly our business taxes down.”

The Office for National Statistics revealed that the UK economy shrank by 0.3% in March after the economy grew by 0.1% in the previous three months.

Campbell said she is seeing SME’s planning to depart the UK in the near future.

Neil Berry, tax partner at MacIntyre Hudson holds a different view to Campbell and stated that after consideration is taken by businesses to the wider financial picture, they will begin to support Hunt’s position.

“They may not like it, but they will perhaps agree with it. As a country, we cannot have handed out the billions we have over the last couple of years to protect the economy and jobs and not expect that borrowing to be repaid through higher taxes.”

Berry believes there has been a disconnect in the UK, and after having a prolonged phase of low inflation and cheap money, individuals and enterprises now expect the government to keep rescuing them as both these factors have altered.

“At some point the reality of paying to live in a sustainable society cannot be ignored.

“The better question or starting point might be; are we spending the taxes that are raised in the best possible way. And the answer from UK business will probably be, no we are not,” he added.

Cutting corporation tax may not be the answer

While many people advocate for a reduction in corporation tax from the current 19%, it may not be as significant a factor as some suggest, according to Berry

“Multinational businesses are more than capable of working within the UK tax net and mitigating their tax liabilities legitimately.”

Berry said nations with lower corporate tax rates may be more attractive, but they will also possess negatives in equal measure.

“Cutting corporation tax rates may not yield the benefits that we may think it will. Again, we need to look at the real causes of what makes the UK unattractive to overseas investment, rather than headlines designed to make political capital.

“Perhaps the behaviour of Westminster politicians is something that needs tackling before our tax rates are considered,” he stated.

Labour market issues

Brexit is still taking effect on the UK’s labour market, noted Campbell.

“Businesses have been struggling to absorb the overhead cost of Brexit and they see little option now but to relocate or even close as higher taxes and the lack of skilled or willing labour makes this the sensible economic decision to secure their future prospects.”

Campbell’s views on the labour market are echoed by Berry. He stated that there are mixed views on the labour market and productivity must be addressed.

“This is not restricted to UK businesses. This applies to the civil service/government departments. There is deepening frustration at the lack of productivity in departments that interact with UK businesses. But UK business is robust, the entrepreneurial spirit is still there, despite the economic headwinds.”

Campbell said she can only foresee a reduction in economic growth for the UK and more job losses.