Pre-Budget report 2006 – our comment

pre budget report

Gordon Brown could have come across all statesmanlike; presenting himself as
the next prime minister in waiting, taking little action in his more traditional
chancellor’s role. The temptation must have been great. Not much detail and a
clear message to the country that he is the coming man.

And to an extent he did just that, especially with his announcements on
education. But he still took the time to get caught up in the detail of tax and
tax avoidance, showing that his eye is still very much on the country’s finances
and the finer detail of Treasury work.

But that said, his action on the arcane subject of controlled foreign
companies indicates a chancellor who knows his stuff. Essentially, the measures
will allow companies to establish subsidiaries in a lower tax jurisdiction and
to take advantage of the advantageous rates.

The Treasury had fought with companies over this issue earlier in the year,
and this resulted in a win for taxpayers in Cadburys-Schweppes case at the
European Court of Justice. And there had been expectations that the Treasury
would continue fighting.

But Brown has acknowledged defeat. This is compelling for two reasons.
Firstly it changes the Treasury’s habit of fighting every ruling tooth-and-nail.
But it also indicates a chancellor who is aware that there is increasing concern
about the British tax regime and its lagging competitiveness with other

There had been mounting pressure. A senior tax expert at HSBC had recently
warned Westminster that UK tax was looking very unattractive – and shortly after
that research showed a number of companies fleeing the UK in search of more
favourable rates.

In making his admission Brown perhaps made a virtue out of necessity. He
certainly gave it a positive spin, but it seems like a message is hitting home.

Having said that there’s no sign of the actual rates changing – that, I
assume, would probably be an admission too far.

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