Remember UK Plc’s vast contribution
IT is sometimes argued, including by government advisers, that the state should promote small firms above large ones. These people even argue that small, insurgent entrepreneurs are morally superior to larger, more bureaucratic multinationals. I disagree, but I can see where they are coming from: I too would much rather work for a small, nimble, disruptive, innovating firm grabbing market share from established rivals (and I’m fortunate that I do). Entrepreneurs are a great force for progress.
But while successful start-ups are the future, large firms are equally vital. They should not be bashed merely for being large and successful. Large multinationals make a huge contribution and drive productivity, skills and investment; and as astonishing figures out today reveal, the top 100 largest UK firms and their staff account for 13 per cent of all taxes collected (and pay staff an average of £46k a year, against a UK average wage of £26k).
The government’s job should be to lower artificial barriers to entry to markets (many of which are created by regulations that benefit incumbents), allow businesses small and large to compete, eliminate subsidies (which tend to be captured by larger firms but are counter-productive regardless of who receives them) and make it easier for people not just to start a business but to grow it. They should not promote a naïve, small is best caricature – but neither should they live in corporatist sin with big business. Of course large firms are more bureaucratic; but they are nevertheless hugely less so than government departments, so it is a bit rich for politicians to criticise them on such grounds.
A report out today reminds us of just how important the largest firms in the country are, and why the current anti-business climate, mounting calls to tax senior executives even more heavily and the endless flood of red tape is counter-productive. We need more successful firms – large and small – to be based in the UK and to employ people here; yet too often one gets the impression that the government is trying to do the opposite.
The tax take from Britain’s largest companies rose 14 per cent in the year ending March 2011 to reach £67.7bn, PwC’s annual report for The Hundred Group reveals. The proportion of total tax paid and collected by these firms is now higher even than at the height of the bubble. Payments of corporation tax increased by 60 per cent. Other taxes such as employment taxes also rose strongly. For every £1 paid in corporation tax, firms paid a further £1.53 in other taxes borne, and helped generate an additional £4.15 through taxes they collect and administer such as pay as you earn. A shocking 46 per cent of the value distributed by the companies was paid to the state in taxes borne and collected.
Of course, companies often engage in dubious (though legal) practices to minimise tax bills. Today we report on HMRC’s decision to throw out one scheme at Barclays, including via a retrospective change in the law (which in itself may set a dangerous precedent). It certainly makes no sense that some firms pay tax that others can avoid, which is why we need radical tax reform to produce a simpler, fairer and pro-growth and pro-wealth tax system which does away with loopholes and avoidance opportunities. But the untold story is that large firms are in the aggregate paying far more tax than ever. We are in danger of forgetting just how much we need them.
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