Low tax regimes only matter as much as their longevity
The tax breaks will, we were told, include 100 per cent relief from business rates on newly occupied business premises, and offsets for companies on spending on new plant and machinery in the first year. Relaxed planning regulations are also set to be part of the package.
The race from local authorities to be included will have already begun. From their point of view, it is definitely better to be in one of the zones than to be out of them. But looking at the economy as a whole, we should not expect too much from proposals such as these.
Any such scheme gives rise to an interesting question. If low regulation and tax incentives are thought to be powerful measures to stimulate an area, why are they not applied to the economy as a whole? Of course, this may be the ultimate intention of the government, and the zones are merely the guinea pigs in an experiment.
Certainly, the planning regulations have now become far too onerous and restrictive. Many local authorities in “left behind” areas would welcome their relaxation, whatever the Nimbys in the Home Counties Blue Wall constituencies may feel.
But tax concessions in a limited set of areas play only a marginal role in the decisions of companies on whether or not to relocate to such an area.
The duration of the tax regime compared to the time horizon of the investment will be a much more significant consideration.
Building a new factory or laboratory is a decision with consequences which can last for decades. In contrast, tax rates can be changed not just rapidly but frequently. If a Labour were to win in the next election, the proposed changes could be hastily scrapped. Keir Starmer, speaking yesterday at Labour conference, was certainly no fan of the fiscal plan which he claims “redistributes wealth from the poor to the rich.”
Ireland, of course, is an oft-cited pin up for low corporation tax. But it is an aggressive policy several decades in the making. They have been rewarded, with tech giants setting up shop there.
But companies such as these use perfectly legitimate ways of minimising their tax bills. The actual rates which are in force in any particular country, at any particular time are, by and large, irrelevant to them.
That Ireland has been forced to sign up to the international agreement on a minimum corporation tax rate will make little difference to the decisions of American firms to invest there. The facts that the Irish speak English and have a good supply of well-educated graduates is far more important.
In terms of local areas in the UK, the same sorts of principles apply. The availability of skilled labour, accessibility by road, rail and air, proximity to good cultural and leisure activities, strong links with prestigious university science departments – all these are fundamental to the success of an area.
The success of the Oxford-Cambridge-London “golden triangle” depends much more on factors such as these than the particular tax regime which is in operation. These are relevant over periods of decades, tax rules are impermanent.
A policy of, say, major investments in the science departments of strong regional universities might do more than the current tax proposals. Maybe the government will do both.
The government means well with its “enterprise zone” proposals. Localities will be better off with them than without them. But they are far from being a panacea.
Low tax investment zones are set to be introduced by the Truss government and go beyond the current “freeports” brought in by the former chancellor.
The tax breaks will, we were told, include 100 per cent relief from business rates on newly occupied business premises, and offsets for companies on spending on new plant and machinery in the first year. Relaxed planning regulations are also set to be part of the package.
The race from local authorities to be included will have already begun. From their point of view, it is definitely better to be in one of the zones than to be out of them.But looking at the economy as a whole, we should not expect too much from proposals such as these.
Any such scheme gives rise to an interesting question. If low regulation and tax incentives are thought to be powerful measures to stimulate an area, why are they not applied to the economy as a whole? Of course, this may be the ultimate intention of the government, and the zones are merely the guinea pigs in an experiment.
Certainly, the planning regulations have now become far too onerous and restrictive. Many local authorities in “left behind” areas would welcome their relaxation, whatever the Nimbys in the Home Counties Blue Wall constituencies may feel.
But tax concessions in a limited set of areas play only a marginal role in the decisions of companies on whether or not to relocate to such an area.
The duration of the tax regime compared to the time horizon of the investment will be a much more significant consideration.
Building a new factory or laboratory is a decision with consequences which can last for decades. In contrast, tax rates can be changed not just rapidly but frequently. If a Labour were to win in the next election, the proposed changes could be hastily scrapped. Keir Starmer, speaking yesterday at Labour conference, was certainly no fan of the fiscal plan which he claims “redistributes wealth from the poor to the rich.”
Ireland, of course, is an oft-cited pin up for low corporation tax. But it is an aggressive policy several decades in the making. They have been rewarded, with tech giants setting up shop there.
But companies such as these use perfectly legitimate ways of minimising their tax bills. The actual rates which are in force in any particular country, at any particular time are, by and large, irrelevant to them.
That Ireland has been forced to sign up to the international agreement on a minimum corporation tax rate will make little difference to the decisions of American firms to invest there. The facts that the Irish speak English and have a good supply of well-educated graduates is far more important.
In terms of local areas in the UK, the same sorts of principles apply. The availability of skilled labour, accessibility by road, rail and air, proximity to good cultural and leisure activities, strong links with prestigious university science departments – all these are fundamental to the success of an area.
The success of the Oxford-Cambridge-London “golden triangle” depends much more on factors such as these than the particular tax regime which is in operation. These are relevant over periods of decades, tax rules are impermanent.
A policy of, say, major investments in the science departments of strong regional universities might do more than the current tax proposals. Maybe the government will do both.
The government means well with its “enterprise zone” proposals. Localities will be better off with them than without them. But they are far from being a panacea.