This Budget looks set to be more car park than roadmap
You have probably read at least two dozen columns speculating on where those tax rises of doom are going to land in next week’s budget, so I’m not sure there is much more to say on the big topics of contention. We’ll find out soon enough whether employers’ National insurance (NI) really will go up, if all the representations by various interested parties have worked and exactly how that fabled black hole will be plugged.
Let me instead direct you towards a less newsworthy but perhaps more notable feature we know will be in Chancellor Rachel Reeves’s speech. The new government has promised to publish a roadmap for corporate taxation.
The last corporate tax roadmap was introduced by the coalition government in 2010. Heads of tax go dewy eyed reminiscing about the wise beneficence of David Gauke, then exchequer secretary to the Treasury, now regular podcaster and media commentator. I just had another read of Gauke’s work and in fairness it’s a nice document, written in an engaging style.
Should we expect something similar this time? No. You certainly won’t get a repeat of the first principle: “lowering the rate while maintaining the tax base”. The Corporation Tax (CT) rate isn’t going up, but it isn’t heading down anytime soon. Those popular incentives and reliefs stay, but don’t expect any new ones.
Rather, this roadmap is going to be about reassuring markets and investors that the UK is stable and predictable. Hardly surprising: whenever we or others run surveys about tax policy we always find the same themes coming up. Taxpayers say they want stability and predictability, no surprises and simplification. The message from the new government’s International Investment Summit this month was that the roadmap will focus big time on stability. An uncharitable interpretation would be that it promises to be more a carpark than a roadmap. Or a dropped pin on your mapping app. It fixes where we are now.
Stability is a fine objective. Predictability and certainty are harder, but at least this government is having a go. Although it didn’t make it into the final manifesto, Labour said earlier in the year that it would trial greater use of advance rulings on the tax aspects of very large investments. That would be a welcome development and something many of our foreign peers have used to their benefit when attracting both foreign and domestic investment.
But fixing the map pin does risk missing a trick. When those survey responders say they want predictability and certainty I don’t think they want stasis. There are deep-rooted problems and distortions in our tax system which are overdue reform, and these go well beyond corporate tax.
To name a few: we retain a big gap between employment and self-employment income that distorts individual and organisational behaviour, as does the way we tax income and capital gains. Our VAT and income tax thresholds are a known problem. We still treat debt and equity investment very differently, and every attempt to close this gap has focused on tightening debt interest relief rather than rewarding equity investment.
As for simplification: many have promised it, but few have delivered. Something about which that 2010 roadmap was refreshingly honest. We insist on keeping a whole host of largely useless appendices hanging off the guts of our tax code. All they do is increase the cost of compliance without bringing in cash.
And the headline CT rate is uninspiring. I understand the politics of dropping tax on corporates at a time of renewed austerity is challenging to say the least, but things have changed since the US Tax Cuts and Jobs Act in 2017 and more recently the Inflation Reduction Act with its vast green credits. Unless the UK rate of taxation for corporates is materially below that of the USA, we are not fighting our European neighbours for US investment: we are fighting the urge to keep those dollars back in America.
A roadmap is a good start, but let’s hope for one with a few bulldozers at the ready.