Corporate tax advantage ‘will be safe’ under Labour

A new Labour government is unlikely to meddle with the competitive corporate tax advantage the UK has over its European neighbours, tax experts said last week.

The UK’s upper rate of 33% is lower than in Belgium (34%), the Netherlands (36%), France (37%) and Germany (45%).

Maurice Fitzpatrick, head of economics at Chantrey Vellacott and an adviser to the Liberal Democrats, doesn’t believe Labour will increase rates.

‘They could perhaps press for a slight upward drift of 2%, without being accused of being anti-competitive. That would bring in #2bn, the same as a penny on income tax,’ Fitzpatrick said.

‘Labour certainly doesn’t want to be seen to be anti-business,’ said Tony Hughes, international corporate tax partner at Coopers & Lybrand.

The UK is in good shape economically and Blair would not want to ruin that situation, he added.

But Hughes warned Labour might tighten up other areas: ‘They will certainly go for more anti-avoidance, and could abolish the tax credit system for dividends altogether, like in the US and Holland,’ he said. Such a move would be in keeping with Labour’s stated commitment to encourage investment rather than distribution, he added.

Brian Gilligan, national tax partner at Pannell Kerr Forster, feared Labour tightening of inheritance tax would hit family-owned businesses.

‘The growth and stability of small and family-owned businesses stems from knowing they can pass it down to their children,’ he said.

Any alteration of the exemption status of business asset transfers, through inheritance reliefs, would be an attack on their capital base, he said.

‘Such a move may provide a short-term gain, but it would be a great political mistake,’ added Gilligan.

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