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Osborne and a corporate tax revolution

Robert Peston | 09:41 UK time, Wednesday, 10 June 2009

George Osborne has said it twice now in major speeches, so I think the City has to take the threat seriously: a Conservative government is likely to make it much more expensive for companies to finance their activities by borrowing vast amounts rather than through equity funding.

George OsborneIn his address yesterday to the Association of British Insurers, the shadow chancellor said he wanted companies to reduce their "reliance on debt and leverage to increase returns" - and that he would do this by "reducing the bias in our corporate tax system against equity and towards debt financing" (for an acute and amusing insight into the rest of what he said, see Stephanie Flanders' note of yesterday).

Plainly one route would be to provide additional forms of relief for equity investment or to abolish stamp duty on share trading (which Osborne has in fact long favoured).

But tax revenues are bound to remain tight for some time to come, so it is difficult to see Osborne as a new chancellor (should that be his fate) choosing to reduce revenues for the Exchequer - especially since he would be seen to be rewarding capitalists, while almost certainly squeezing public services at the same time.

Much more likely, as he said in a little-noticed speech in March, is that he would reduce the amount of interest payments that companies can claim as an allowable cost to reduce their tax bills.

Here's what he said in the spring: "the UK is widely regarded as having the most generous tax treatment of debt interest of any major economy", so it was "time to look again at the generosity of interest deductibility in our corporate tax system".

He acknowledged this wouldn't be easy, in a technical sense. And there would have to be serious and diligent consultation on the detail.

But here's a striking insight into his instincts: "one of the most damaging impacts of the credit boom" he said "was that real venture capital in exciting new businesses was squeezed out by highly leveraged private equity".

In other words, Osborne - unlike either Alistair Darling or Gordon Brown - has signalled strong distaste for the private-equity boom of 2005-7, when many of our biggest companies were taken private in deals that saw them loaded up with debt (if you go back to the archives of this blog for the first half of 2007, you'll find a good deal about all this).

Right now, many private equity firms are in a spot of bother: some of the over-borrowed companies they own are floundering under the weight of their debts; as credit bubble has turned to crunch, they're not finding it easy to finance new deals.

If private-equity firms expected life to be any easier for them under a Tory government, well Osborne has made it clear they can expect no favours from him. His mooted tax reforms would undermine their business model, which relies to a great extent on the tax-deductibility of interest on the borrowings they take out to buy businesses.

That said it would not be "ouch" for the entire private sector. Which is pretty fortunate, since demand for goods and services may remain fairly fragile after the next election.

Osborne has an aspiration to reduce the headline rate of corporation tax to a significant extent - which is a laughable ambition given the frightening weakness of the public sector's balance sheet.

But if he were to reduce the tax breaks on corporate debt, just possibly slashing corporation tax would be more than the idle daydream of a wannabe Tory chancellor.

Comments

  • Comment number 1.

    Is this the first stealth tax the tories are looking to impose on the uk economy?

  • Comment number 2.

    If it stops this leverage madness then good stuff.

  • Comment number 3.

    Robert do you believe in neo liberalism for the masses and protectionism for the elite?

  • Comment number 4.

    Osborne is the one factor that may stop the Conservatives gettg into power next General Election. Just as Conservatives want Brown to stay in power, so Lor want Osborne to staw Shadow Chancellor. True he as an impossible task given what Labour has done to the economy and the countries balance of payments and he has to get money from somewhere. However, in apolitican sense, just look and what has been happening during the recession so far - Vince Cable continually on TV taking Labour apart and Osborne nowhere to be seen.

  • Comment number 5.

    So really he's saying that a company's attitude to expansion and risk has to be based on what they can afford?

    On top of which he is going to take away the benefits of debt on the balance sheet

    It sounds eminently sensible since our banks are going to be zombified for some time, and speaks much more of austerity

    I also agree that the highly leveraged have chased away all the money that once upon a time was used to push forward those world beating ideas

    It is in fact a mark of great detriment to this government that they have stifled innovation unless it was in the financial industry, but we have to hope that by actually making things that people wish to buy then we have the opportunity to build a manufacturing industrial sector again

  • Comment number 6.

    Certainly steps need to be taken to address the problems of over-borrowing and excess debt that are root causes to the financial crisis, but it just seems a bit rich coming from a guy who until a year ago was calling for free-er markets and less constraints on business. Can this leopard really change it's spots like this, or is it part of his 'making money appear out of thin air' policy frame work?

  • Comment number 7.

    It's good news that Osborne is considering the issue of the UK's bias against long-term venture investment. Of course, Labour called for the same thing when they were out of power. I guess when you get in, the lure of short-term growth is very tempting.

    That said, it's not necessarily clear that the response is correct: taxation of capital is tricky ground. I hope there will be a way for smaller companies to retain tax deductibility of interest, which is a genuine business expense for them.

    But this does hint at a big mystery in the expansion of the last eight years, which to me is more cultural than it is about differential tax treatment: where is all the business investment?

    http://www.knowingandmaking.com/2009/06/where-is-business-investment.html

    This is a tough puzzle. I do have an idea about it, which I start to develop in the article above.

  • Comment number 8.

    I dont veiw this as a stealth tax, it is about time that the ammount of interest claimed is reduced to stop debt laden companies passing themselves off as business models,
    If you cannot afford to run the business then it should not be running,

  • Comment number 9.

    It is true to say that despite Brown's aspirations to create a "US style enterprise economy" the availability of risk equity capital particularly for funding high value adding start-ups has remained low and in fact got considerably worse with the advent of Private Equity companies.

    Banks in particular have resisted entering the risk equity business although were very happy to lend in spades to PE companies, hedge funds and others. The Tories could now change this attitude not just by changing the corporation tax regime but by requiring banks and other financial institutions to contribute an agreed proportion of their gross profits to a national venture fund.... This contribution could then be corporation tax free......

  • Comment number 10.

    Reducing the tax break on interest is an excellent idea. What is not pointed out in Robert's summary is that a further distortion arises in pension funds, which receive corporate interest tax free, whereas they cannot reclaim the tax credit attaching to dividends, representing a share in the underlying corporation tax on profits. The latter is of course the source of a considerable part of the funding problems of pensions. A very worthy reform might be to reinstate the reclaiming of tax credits, paid for by disallowing interest for corporate tax purposes, although I have no idea of how out of balance this would be.

    Robert, you let your whole article down by the side swipe at the Conservatives, referring to a possible reduction in corporation tax as laughable. It is the Conservatives who are keen to see the country balance its books, and the strength of sterling is to a large extent due to a belief in the markets that thay will win the coming election. Gordon has in the meantime promised 3 more years of spending increases - now that really is laughable. What is even more laughable is that he no longer refers to spending - everything has become investment.

  • Comment number 11.

    The last decade of debt-fueled spending has been an economic disaster. Banks, companies and individuals were drawn into gambling on asset values in preference to investment in real wealth creation. We are all now facing the consequences of that systemic error.

    A radical change of economic policy is required. Changing tax incentives to favour equity investment makes a lot of sense.

  • Comment number 12.

    Osborne is half way right, reading between the lines he is acknowledging that Corpoation 'Tax' barely exists for large multi national businesses, given their fantastically elaborate structures that are in place to avoid paying ANY tax to anybody. But this is just tinkering around the edges of the real problem, which is that the management of most publicly traded companies devote all their time and energy to one thing, boosting the share price. This is because they are rewarded in stock options and bonuses that kick in depending on where the share price goes. There are many ways to artificially inflate the attractiveness of a companies shares, the most important of which is having all of the bad bets on derivatives of various kinds 'off balance sheet' and only referred to in the most vague and opaque of terms in the published accounts.

    He also has to be careful, because the huge loopholes in the British tax system inadvertently make it a very attractive place to base a business and it is a hard call to decide whether the potential gains in tax revenue will be negated by the potential loss of jobs if some of those companies decide to take their ball and play somewhere else...

  • Comment number 13.

    I care little about what Mr Osborne says (I don`t understand it anyway). I am only slightly concerned about what he does. Politics is a short term game not a long term strategy
    As long as he helps to get rid of this awful,self serving, bunch that is masquerading as a Government.

  • Comment number 14.

    Does this not mean that only rich people can set up companies - certainly a barrier against people with good ideas who would need to 'marry up' with a rich investor OR suffer a more penal corporation tax charge.

    Like all tax proposals its a bit hard to talk about as a headline - for example it makes sense for this only to apply to large companies where the high leveraged private equity deals have been going on whilst leaving the small and medium sized company legislation unchanged - this may well be the plan.

    Also the innovative companies may well be getting large extra R&D reliefs which will outweigh any reduction in their interest offset.

    Also what about those companies already struggling with their high debt and repayments - surely a more penal tax regime will plunge them further into trouble?

    And finally this is a Conservative pronouncement with little detail and they are not in power - its not even a manifesto pledge and we know that politicians aren't even very good at sticking to these! I'd prefer to talk about current reality in the economy - is it a W or a V we are facing?? If a V then we will be back to normal by end of year - hmmmmmmm.

  • Comment number 15.

    The pro equity / anti debt debate would need to discriminate between those larger companies who might have access to the capital/bond markets and those smaller ones that dont. It would be crass stupidity and inequitable to penalise SMEs for borrowing when that is their only means to fund investment or else face giving up ownership and control. The private equity barons and the FTSE boyos are a separate case. The FTSE boyos at the moment are gaining from having the privilege of Bank of England buying their paper and bonds courtesy of the taxpayer / central bank funds.

    Anyway, I remember you, Robert, criticising our institutional shareholders for constraining the FTSE boys from using debt to increase their returns and allowing the Philip Greens to walk away with value which otherwise could have accrued for the benefit of pension funds.

    The debate you mention is more than over simplified and Osbourne will need to think carefully.

  • Comment number 16.

    Balancing the book means cutting a big chunk of public spending. Part privatisation of Royal Mail? More like a complete one. Bye bye NHS - that'll surely balance the books. ;)

    The worst thing you can possibly do is try to balance the books during a recession. It only makes it last longer and more painful to recover from.

  • Comment number 17.

    re #1. How can it be a stealth tax when they are saying that they are reducing the relief on it IN PLAIN SIGHT????

    I bet when your pint of milk went up 1p after your milkman told you about it, you complained about the stealth tax, then, yes?

  • Comment number 18.

    "it just seems a bit rich coming from a guy who until a year ago was calling for free-er markets and less constraints on business."

    However, taking away a government granted bonus (I don't get to count my debt payments against my taxes) IS a free-er market with less government interference.

    Not helping IS less interference.

  • Comment number 19.

    As a small investor I and the tax man have done my bit by investing in two Venture Capital Companies (one in manufacturing and on in the creative industries!.) But I do agree that borrowing for a proportion of working capital should not attract tax on interest (and incidentally in this connection some will want to know what happened to the quantitative easing money) But SME's should not be over rewarded for their foolishness like excessive dependence on overdrafts and even credit cards and should use properly arranged structured finance.

    That said I do not think that risk appeals to businesses and GO's tax concession will find its way into dividends and therefore mostly into the financial sector, broadly defined.

    After all that is what GB was betting on when he reduced corporation tax and imposed a 10p (balancing) tax eventually on all dividends in the late 90's. The pressure of financiers was to steer the reduction in tax into dividends.... eventually it did.

    Tell us you model George!



  • Comment number 20.

    "14. At 11:07am on 10 Jun 2009, GRIMUPNORTH77 wrote:

    Does this not mean that only rich people can set up companies "

    No.

    Unless you can't afford to run your company (why is it you sell shares again..? you seem to have forgotten) and KNOW that you can't afford it.

  • Comment number 21.

    I find it fascinating that, already, people are trying to pre judge a politician on what he has not said, for example:
    However, in apolitican sense, just look and what has been happening during the recession so far - Vince Cable continually on TV taking Labour apart and Osborne nowhere to be seen.
    So, are we to assume that politicians are not regarded in a bad light if they mess up totally in office, as long as they pull down the opposing member in a spectacular and headline grabbing way? How about looking at the real policies (if they have any) they are offering and let us get away from trial by media.

  • Comment number 22.

    I get the feeling that Osborne has a fundamentally sounder understanding of economics that either Brown or Darling.

    Much of what he has been saying is very sensible and even more left-wing than Labour when it comes to remuneration.

    Much as Labour supporters will try to deny it, the fact is that we stand a much better chance of getting our economy on a sound footing again with the tories.

    Once they have been voted out, the true extent of Labour's mismanangement of the economy will become apparent. Let's hope the public will never be daft enough again to let the likes of Brown run things again.

  • Comment number 23.

    It's a sensible enough policy, but a couple of thoughts before we rush in to hasty policy:

    1) Unstitching the capital structures is incredibly difficult en masse. How do you do this? say, suddenly say all corporate debt above a certain leverage ratio is not tax deductible? If you do that hundreds of firms will go bancrupt simultaneously as not all can use the equity market, and they suddenly have less cashflow due to tax. Result: job losses.

    2) Remember, as usual GORDON BROWN IS AT FAULT HERE - GB's office was bankrolled by Ronald Cohen (founder of Apax) in 2005, who persuaded Brown that Private Equity was all about funding small ventures. Here peston is (for once!) right - Private Equity has grown out of what was traditional venture capital (ie lending money to small start ups) to become a more leveraged vehicle (useing debt to magnify investment returns).
    The point is that by bankrolling Brown, Cohen was able to keep the Labour Party on side, enabling the PE industry to enjoy the tail end of the massive credit boom longer by KEEPING THE 10% CGT TAX RATE availble with taper relief and debt deductibility.

  • Comment number 24.

    It is about time that somebody took on the Private Equity thieves. Why should the tax payer stand the cost of them buying businesses and stuffing them full of commercially unsustainable debt. If the business only gets a deduction for a "reasonable" amount of debt that must be a good thing surely?
    It may even help to reduce Corporation tax rates for the people that pay the most of it ie.e the SME sector, which has seen it's rate of Corporation tax rise to 21% (and which will rise to 22% next year)while the big boys have seen their rate fall from 30% to 28%.

    The SME sector cannot claim for commercially unfeasible amounts of debt even if they wanted to as the banks wont lend it to them in the first place!Therefore they should have nothing to fear from a sensible proposal to limit the deductibility of interest.

    Unfortunately for Mr Osborne this particular horse bolted a long time ago. He would have had more credibility if he had said this 5 years ago when the PE thieves were making money hand over fist.Nonetehless if it does not harm "ordinary" businesses and acts as a deterrent aginst the PE thieves trying the same trick again in the future it will be no bad thing.

  • Comment number 25.

    I think he is referring to the thin cap rule which has been around for a long time, well for foreign owned companies anyway, so I guess the 10% rule of thumb would be changed or would they go so far as to make all interest non deductible ? Someone commented the other day that reading RP is more fun when you try and figure out his hidden message, so true!

  • Comment number 26.

    A lot of our economic problems have been caused by tax differentials. For example, the ridiculously lenient treatment of capital gains on house prices (a non-productive asset) as opposed to the tax treatment of pensions (a productive asset, as the money is mainly invested in equities). Reducing the differential between equity and debt financing can only be a good thing. It's not the government's role to bias investors in favour of debt financing, the market should be deciding this issue.

    To take an example that people can relate to; I personally don't think it is in the long term interests of Man Utd (as an organisation) to have been loaded up to its eyeballs in debt. However, under the current tax regime, it makes plenty of sense.

    I would accept #14's point that you might want to keep debt exempt for start ups and small companies that don't have access to capital markets.

  • Comment number 27.

    This is a brilliant example of followership masquerading as leadership. The time to be pushing for this was long before the credit crunch bit and the way to do it would have been gradually. In essence companies are now being forced to de-leverage due to lack of available credit and the speed with which this has happened is causing much pain that could have been avoided.

    So I'm not against Osborne's proposal but it's rather like outlining the winning strategy when the battlefield is already soaked in blood.

  • Comment number 28.

    # 23 New_Hero wrote:

    "bankrolled by Ronald Cohen ..." etc

    If this had happened in a banana republic, we would have said

    "Self-interest lobbyist bribed a political party and its politicians at the expense and security of the country"

  • Comment number 29.

    To be honest, I, like many on this site, regard George Osbourne as a slimy career politician, much in the same way as many regard Lord Mandelson. However, there are times, such as the interview in the money program last night for Lord Mandelson on the car industry, when they show a certain amount of good sense, and I am glad that they are 'our' slimy politicians. If Osbourne was to implement a graduated scheme of decreased tax deductions in order to phase out large scale debt over a five or ten year period (I remain sure that the next government will gain two terms), this scheme would work well and increase tax revenue.

  • Comment number 30.

    So the Tories are gonna be tough on credit and tough on the causes of credit - we know we're in a crisis now!

  • Comment number 31.

    Peston and his bias - NOTHING about the HUGE debt this corrupt lot have saddled us, and future generations, with. Hey a Tory says something and it is immediately a STORY - anything to deflect attention away from Pestons cronies - who did he write a biography of again???????????-we all know your game Peston.

  • Comment number 32.

    I recall an economist explaining to us lesser mortals why private equity buy outs were so good. Apparently companies that carry a lot of debt are managed more efficiently.....pure Alice in Wonderland.

    Actually I don't think Lewis Carroll's imagination would have been a match for the economics of the past 25 years.....although his I 'happy unbirthday party ' is a bit like the 'happy unmet target, so gorge yourself on unearned exec bonuses party'. More tea anyone?

  • Comment number 33.

    re: yeah-whatever #17 and other various rantings.

    I still feel costs incurred for a genuine business activity by corporations should in general be reflected in a corporation tax calculation. I do not see this as a government bonus, especially when as a general rule it is usually only profit making companies who pay corporation tax.

    imo, not restricting the tax deductible status of interest payments was not the cause of excessive risk taking nor will it be its solution.

    There have been many valid comments made on this blog, in particular to consider that it may be the UK's corporate tax system which leads to companies and jobs being based in the city, many small and medium sized companies have a very legitimate need to carry debt and feel selling equity to venture capitalists expensive.

    Many start up companies will be cash negative for a period of time. This does not make them poor business models or the vast number of sme's in the economy who have needed to borrow as having a history of excessive risk taking.

    To answer your question I wouldn't have a clue how much i pay for milk

    The better comments seems to be those that give an opinion rather than those being sarcastic towards people who hold a different view or wish to make a different point to your own.





  • Comment number 34.

    Robert, I would be interested in your opinion on how this would affect small firms and big firms to a different extent. It seems to me the type of policy suggested by George Osborne will hurt the average small firm more than the average big firm. Big firms can self finance by selling equity which is something small and young firms can not do. Small firms rely more on bank finance to fund investment. This policy would cause a fall in investment, particularly by small firms, which would cause a fall in output. What do you think?

  • Comment number 35.

    Gov't/HMRC have already taken some action on this - as well as the existing "arm's length" limitations on tax deductible interest costs there are the new "interest capping" provisions included in Sch 15 of the Finance Bill 2009 (due to come into effect 1/10/2010) - these will broadly limit UK deductible interest by reference to global group wide interest costs (i.e. so UK group can not be "geared up" to a greater extent than the global group)- as the law has to be EU compliant these rules will apply to UK domicled as well as overseas groups thus further increasing the tax burden on UK corporates

  • Comment number 36.

    Atleast Osborne is trying which is more than can be said for the other feller who has to keep watching his back for fear of flying phones.

    Having been involved with two entrepreneurial developments in the Eighties and Nineties I find this quite hopeful. It became a joke in the Noughties when people claiming to be entrepreneurs and drawing whatever tax benefits that they could as such, refused to look at new start-ups because they were risky. Indeed even to get capital you had to have the capital in the first place: that was when I first realised things were going wrong and ran for cover.

    Lets be realistic: whatever anyone thinks about Labour this government is finished. The country is broke and up to its eye-balls in debt. We have a grim climb ahead of us and any idea needs to be a good idea. This is one small step: don't knock it. I wouldn't want to be Chancellor of the Exchequer so I am relieved to find someone who does and is bringing some fresh ideas to the party.

  • Comment number 37.

    Limits - that sounds sensible. But we do not want to stifle sensibly-funded business growth, say, a person borrowing to buy a B&B. It seems to me that sensibly-funded is more about the purpose of the loan than the size of the loan - and yet the difficulties in defining a set of rules that would enforce that view are not small.

    Borrowing £10bn to build a car plant seems fair enough, but borrowing the same amount to crank it out as smaller loans at higher interest rates does not (especially when the term of the inward loan is shorter than the outward loans).

    The biggest problems we have seen are due to lending funded by lending. While it may seem on the face of it to be worth limiting interest relief on the basis of loan purpose, that is far too easy to get around for large corporations which have historically been very good at finding ways around inconvenient legislation while the track record of governments is conversely poor at noticing the loopholes in the laws they devise and plugging them in advance rather than having to play catch-up.

    It is not difficult to foresee the difficulties where a corporation borrows, ostensibly to build a manufacturing plant, which is tax deductible but does not materialise yet while the money has disappeared into loans supposedly while they revise plans or something. And then in future years the company may no longer be trading in the UK for the Treasury to recoup the tax.

    Overall, it does sound like a sensible idea, but the problem of getting companies to do what they are supposed to do looms large. Not the least of which is that many companies just dont choose to pay their tax in the UK so anything that reduces the likelihood of that happening may ultimately prove to be an own-goal unless the rules on who is liable for UK tax change in tandem. I believe that monies earned in a UK market should be liable to UK tax no exceptions, you cannot move it offshore untaxed. It is ludicrous that companies can do pretty much as they like while individuals have to be outside the UK tax system for a whole tax year to avoid being subjected to UK tax under the reciprocal arrangements system.

    While it is good to see someone like Osborne coming at this with fresh ideas based on a clearer analysis of the underlying problems, we desperately need to see some joined-up government here probably joined-up global government.

  • Comment number 38.

    re 12.39 pm comment - date should be 1/1/2010 NOT 1/10/2010

  • Comment number 39.

    I have felt for a long time that unified boards with so called independant directors are not good guardians of corporate regulation. Independant directors are often chosen by, influenced significantly by and if mot malleable are ousted by chief executives. The execessive pay is a function of this. There are lots of other areas where this effect is felt. One of the best things that could happen is for someone (not the stock exchange - it has too much of a vested interest) to change this. The FSA noticeably stays away from the legal structures of public companies.

  • Comment number 40.

    Having recently read Rober Beckmans book "Surviving the Downwave" it seems that we are all riding a wave that no one can influence. Anything that politicians try to do is purely an attempt to gain votes or support from the majority of people terrified that their world is collapsing. I still hark back to the days when the current Prime Minister claimed he had ended boom and bust, a ridiculous claim then and more so now.

  • Comment number 41.

    It's just another way that companies have more rights than people. I don't get to write the interest on my loans off against my taxable income, just like I don't get to write off the essential costs of living. Yet a corporation gets to write just about everything off against its income.

    Which in turn means that those wealthy enough to do it can just wrap everything up in a corporate shell and save a fortune, while at the same time companies are taken over on the back of ever-more borrowed money where there is little, if any, risk to the individuals behind the scenes.

  • Comment number 42.

    BBC Bias both in Preston's and Nick Robertson's blogs with meaningless but disparaging comments just thrown in.
    Nick Robinson's drop in comment "somewhat implausibly you might think" in his blog about NHS costs. What is the intention of this, it means nothing, but shows his view on the conservative spokesman.
    In Preston's blog on Osborne's idea of cutting corporate tax. He drops in "which is a laughable ambition..." Why does he say that, oh, because Gordon Brown has built a debt mountain. So rubbish one person's idea because of another persons failures. The laughable idea is Gordon Brown's Alistair's idea of getting more tax by introducing 50p tax rate. Similar to his shambles around 10p tax rate. We all know what this will do is drive the rich offshore or into other legal tax avoidance methods and UK gets no benefit.

  • Comment number 43.

    Sounds a sensible start - good to see the conservatives having the confidence to emit policy signals like this even knowing it will take 5 minutes for Brown et al to plagarise and distort anything they say.

  • Comment number 44.

    "33. At 12:12pm on 10 Jun 2009, Kudospeter wrote:
    I still feel costs incurred for a genuine business activity by corporations should in general be reflected in a corporation tax calculation."

    Well I don't get a tax deduction on my car because I need one for work, do I?

    I need clothes because of work, and I don't get tax deductions from it.

    Food likewise.

    All GENUINE expenses I have to undergo to work.

    My employment is my business.

    So why can't I ask for tax relief on it?

  • Comment number 45.

    "37. At 12:51pm on 10 Jun 2009, chris911t wrote:

    Limits - that sounds sensible. But we do not want to stifle sensibly-funded business growth, say, a person borrowing to buy a B&B."

    But buying a B&B should return enough profit to pay off any sensible loan, yes?

    If it cannot, surely it isn't a "sensible loan".

    How else would you assess whether it is sensible?

  • Comment number 46.

    "Which in turn means that those wealthy enough to do it can just wrap everything up in a corporate shell and save a fortune, while at the same time companies are taken over on the back of ever-more borrowed money where there is little, if any, risk to the individuals behind the scenes."

    Yup. Instead of being given enough to afford a jet, the CEO gets a company jet. The money of which is tax deductible if it is a loan and the depreciation costs also offsets against profit.

    Yet if the CEO got the jet, there'd be some tax to pay and depreciation is his problem, not the tax man's.

    And so the rich CEO gets a jet and less tax. And that tax has to come from someone. So it comes from people who don't have enough to make it worth dodging: the middle class.

  • Comment number 47.

    It might also help if subsidiaries were prohibited from making loans to their parent companies and other group companies. All funding provided from subsidiaries to parent companies should be in the form of dividends. This should limit the extent to which private equity firms can strip cash out of companies they have acquired and in turn reduce the attraction of using debt financing to make the acquisition and also reduce the risk to the subsidiary from the parent company's debt.

  • Comment number 48.

    I always thought we were in a stupid position where if I bought a house to live in I would have to pay interest on the mortgage payments.

    If I created a company and bought the same house with a loan and then rented it out then the loan interest is tax deductable.

    What kind of society are we in when it's cheaper for a business to buy a house to rent than for a person to buy the same house to live in with their family?

  • Comment number 49.

    Robert exaggerates the impact on private equity, and indeed their current travails. They will emerge quite strongly from this recession - indeed for many it is a massive opportunity to clean up. (Again). But Robert hates them, so why not put the boot in?

    "Reducing" (not eliminating) the deductibility of interest has been expected by PE professionals for years, as most countries have "thin capitalisation" rules to limit the level of debt available for interest relief. It will be a minor reduction in their competitiveness v. trade buyers and I would expect the limit to be relatively friendly v. other countries to avoid losing a lot of PE/banking business overseas.

    Not a big story.

  • Comment number 50.

    As slimy as he seems to be, George Osbourne is actually making sense in many of his proposals. He's certainly making more sense that GB and AD ever did.

  • Comment number 51.

    And, by the way, I am pretty agnostic politically, but I agree with no.42 that calling Osborne's ambitions "laughable" is an outrageous thing to say on a labour party, I mean BBC, blog. (Particularly given what's gone on before).

    Not sure Robert will still be around in May next year.

  • Comment number 52.

    More left wing nu labour loving spin from Robert Pinko Peston

    The approach for the last 10 years has failed - we cannot keep living beyond our means - it is foolish to believe anything else. To criticise neccessary economic steps because of the economic stupidity of the current goverment - we need limits and controls ( unlike what has got us into this current mess )

  • Comment number 53.

    "Osborne has an aspiration to reduce the headline rate of corporation tax to a significant extent - which is a laughable ambition given the frightening weakness of the public sector's balance sheet."
    Robert - you are really showing your true colours with that line.

    It's no more laughable, indeed it's a lot more serious, than the comedy show policies and forecasts coming out of Downing Steet, numbers 10 & 11.

  • Comment number 54.

    The one thing the Tories were excellent for after the eighties recession was the stimulation of SME's.

    They are still the party of business and only new businesses and those who understand their needs will get this country back on track.

    Who knows what the state of the country will be by the time they manage to wrestle it back but one thing is for sure. It will be horrendous.

    No one can work miracles but what people do want to see is where the country truly is and a well thought out plan for the way forward.

    At the moment we have neither of these.

  • Comment number 55.

    Abolishing stamp duty on shares is a very good idea, although 0.5% does not sound much it would make a big difference to pension funds.

    For those that thing they cannot offset income on your own borrowings you are wrong. What is needed is that you are running a business (not through a company but by yourself or in a partnership), interest on loans taken out for your business are tax deductible.

    I suspect GO will find it much more difficult to limit deductibility of interest than they think

  • Comment number 56.

    I will listen to anyone who can tell us how to reduce the debt mountain that GB and AD have heaped on us. We must find a way to begin to balance the books and have some extra to pay down debt if we dont want our children and grandchildren to be saddled with annual interest costs that will roll on and on.

    That inevitably means a mixture of measures to stimulate growth and to elicit cuts which are not going to damage the former process but make sense in efficiency terms. The trick is to do the least damage in the process - a lifetime in the public sector suggests to me that there is some very ripe fruit out there that will hurt no-one, but which Labour seems to have missed. I assume it is the same in the private sector if my experience with the Lloyds/HBOS is anything to go by.

    The trouble with the Government is that they would make lousy book-keepers which is a million miles from being the people who have saved the world from a financial depression as they have claimed.

    The dilemma for Osborne and Cameron is to keep enough up their sleeves so that they have a proposition to put to the country come the election that is fresh and innovative, and a winning hand. If they blow it all now and Labour squeak back in I fear for us all.

    Incidentally, I trust the PMs claim on PMQs that the Government would increase public spending while the Tories would cut by 10% will be nailed by you Robert. Is the 7% increase under New Labour an accurate figure?

  • Comment number 57.

    The rule of unintended consequences may apply here. If you reduce tax deduction on coupons payments, the Eurobond market may decide to relocate. Not good for future tax income for a government that will be looking at a massive hole in the budget. Think again George.

  • Comment number 58.

    Sounds like a very sensible policy-It is time we were rid of, or substantially increased the controls on, private equity gambling which has, and still is, destroying normal trading activites for ligitimate companies. It is creating global instability in markets and represents unsustainable speculation and distortion of the many for short term financial gains of a few manipulators. This is not in the best interests of the nation so lets have it the other way round where highly leveraged private equity is squeezed by Government encouraging real venture capital in new businesses which produce tangible products and results.

  • Comment number 59.

    is there a U-shaped downturn in OSBOURNE??

    how to spell his name is arguably of more importance than whatever Osborne/Osbourne is saying in these speeches; maybe it's laughable, but just in the sense that everything that all Tory and Labour politicians are saying about their present or future stewardship of the economy is clearly laughable

    if you want real change vote for a real alternative, like the PIRATE PARTY, and hope for a hung parliament; we'll keel-haul anyone who cheats on their expense accounts for a start

  • Comment number 60.

    "57. At 3:20pm on 10 Jun 2009, ketish wrote:

    The rule of unintended consequences may apply here."

    It's true of everything, though. Unless you intended ALL consequences.

  • Comment number 61.

    you have to love the two headed snake of british politics. labour and tory, both pretending that they speak for the masses; that they represent the interests of the man on the street. It doesn't matter how many times they're caught with their fingers in the till, or they're caught using taxpayers money to clean their moats, they come out with the same pile of offal time and time again and the great british public, prompted by the great british press, swallow this offal, every single time.

    the tories will save us from labour, just like last time when labour saved us from the tories. what a jolly dance. what a game.

  • Comment number 62.

    Hmmm. What about the Big One: leveraged debt to buy property (adding nothing to the productive economy in most cases). Is that an elephant in his front room?

    We need a tax system that rewards productive labour and (long-term) investment, not speculation. As of now we have the opposite.

  • Comment number 63.

    so Robert, do you take back what you wrote in your book about Private Equity Firms , you were gushing in your admiration of them and how they did so much for the UK economy ?

  • Comment number 64.

    Anny concerns about reigning in the deductibility of interest on samll companies would be easily dealt with by only applying any new rule to 'large' companies (i.e. in line with the rules around R&D tax credits; turnover/assets/employees).

  • Comment number 65.

    "We need a tax system that rewards productive labour and (long-term) investment, not speculation. As of now we have the opposite."

    We need the corporate charter enforced again.

    While there's the (incorrect) mantra "I MUST INCREASE SHAREHOLDER PROFIT!!!" short termism will kill any corporation.

    And, as a minimum, any invested shares over a certain amount for a manager must wait for at least five years after being earned before being cashed. At least their fk-up isn;t going to be "somebody else's problem", though whether it's enough I doubt.

  • Comment number 66.

    Hi Bloggers,

    I'm going to be controversial here and not only be pro labour for a moment but positive.


    I'm a recruitment consultant and must say that business across all areas of my company has picked up considerably in the last couple of months (whether this is due to managers spending their new budget before being told not to or due to green shoots is unclear I admit!).

    Has anyone actually stopped and thought that the above may be due to Labour's determination to help the economy (e.g. quanative easing, bailing the banks, VAT, interest rate pressure etc). The question i ask here is that if the tories were in control would they have took those steps to limit the damage? If they were and didn't would as many economists be talking about green shoots today as are?

    Agreed, Labour were undoubtably at fault for the recession being so heavily felt in this country but others have it worse have they not? Spains unemployment is 20%, mainland Europe is in a terrible state, America has had it worse than us.

    Greed is undoubtly at the bottom of all this ~ The greed of the bankers, hedge funds and private equity bosses to have so much between so few. The greed of politicians to treat those previosly mentioned as gods. The greed of all of us to add as much onto the value of our homes as possible. The greed of estate agents for encouraging this. The greed and shortsighted Car companies for producing to much for to long.......The list is ongoing.

    A Tory Government is about the worst thing I feel that could happen. What would happen to those on tax credits? What about those that need government help which is far greater under Labour. If they were not hit then what would be? The NHS? (which is as good as it has ever been) The Police? (needed more in a recession) Job centres? (needed more) Social Services? (needed more)

    Tory plans of cuts will slow the recovery, Putting this pressure on businesses will slow the recovery.

    I think the government have reacted very well. We should realise what we do have over here. We have an NHS which is amazingly well won yet half the world don't have running water.......Puts it all in perspective doesn't it?

    We will be out of this recession first if we don't bottle it and keep on going, keep investing, keep our faith in public services, recruit into the public sector and then balance that off against a recovering private sector when the time is right.

    Sorry that was a rant.

  • Comment number 67.

    It sounds like a very good idea to me.

    To those who accuse Osborne of a U-turn - would you prefer people in authority to stick to their first idea and never change their minds even if circumstances later show them to be wrong? Surely Gordon Brown should have disavowed you of this intention by now...

  • Comment number 68.

    If other countries do not impose the same tax then British companies will be at a disadvantage in needing to raise capital and be able to pay for it. if you remove the ability to fund takeovers a major part of the city economy will be removed with the resultant tax lost not gains.

  • Comment number 69.

    Times have changed because this time it is serious

    Why can't all individuals pay Corporation Tax Rates (10% on Dividend / Income) by operating as a Limited Ltd (i.e. limited liabilities) Companies?

    National Sound
    Times have changed
    And people are getting cautious
    Times have changed
    Man and man is getting nervous
    nervous
    Some can't trust their brother
    Some not even their mother
    Worse their friend
    Everybody wants to borrow
    And nobody wants to lend
    Seems like in this time
    A man's got look for his own
    give people a chance
    and they'll suck the marrow
    from your bone





  • Comment number 70.

    Personal tax legislation could be simplified to a single sheet of A4.
    Corporate tax legislation could be simplified to a single sheet of A4 paper.

    Why not just start from scratch and keep it simple? It would save a lot of hot air not to mention expensive tax lawyers!

  • Comment number 71.

    One home truth:

    Bank financed (aka leveraged finance) of business/corporate capital has been the story of the last decade or so. Changing horses to equity finance will inevitably disconcert the market and in itself cause a downturn.

    It will be rather like the effects on the dramatic downturn in buy-to-let from 10 percent of the market of house ales to almost zero. In itself a very good thing but it disturbs the market and inevitably lowers house prices. It also removes the equity release financing of consumption which reduces growth.

    It is also inevitable that interest rates MUST rise to sustain any recovery and if we have either no recovery or an innately unsustainable one (financed by unsound money) - the economy will suffer. Now the consequence of increased bank cost of capital will be that it is costlier to finance all leveraged activities. But it will also mean that the cost of equity will be higher because those seeking equity capital will have to compete with the higher interest rates.

    (By the way: this is why interest rates were too low for the last decade - and we now have to unwind the problem. (And why 'MMG - Mervyn Must Go' - as he was the main architect of the unsound interest rate policy.) It is also doubly unfortunate that most of the unsound financing has gone into property price inflation - if only it had gone into stocks and shares they could have been written off, as they were in the 1930s, and we could get going again. The prognosis of the type of Credit Crunch we have experienced is like the 1870s (The Long Depression) as it is far more problematical to get house prices down to sensible levels than share prices (just as in various markets in the 1870s boom and bust - ours lasted until 1896!)

    All in all, George Osborn's idea is good, but unfortunately at the wrong time!

  • Comment number 72.

    "# 68. At 6:29pm on 10 Jun 2009, steved15 wrote:

    If other countries do not impose the same tax then British companies will be at a disadvantage in needing to raise capital and be able to pay for it."

    Recently Steve Ballmer told Obama that his attempt to stop corporate tax dodging would mean that he would move Microsoft out of the US.

    Where to, and whether he'd go there too wasn't said.

    The problem isn't needing to raise capital, it's the being able to pay for it. And the current system means they raise so much capital debt that they CANNOT afford it.

    So how does the situation change according to you if the debt tax rebate is removed or reduced severely? They won't be able to afford capital because it's more expensive?

    Surely the same problem, just with less money being lost if the company goes bankrupt.

  • Comment number 73.

    Well, I've always been suspicious of Osbo, especially due to his hedge fund links; but he seems to be doing some serious thinking.

    I don't agree with John from Hendon about interest rates - at least not to savers. I don't believe that money should automatically increase in value just because it isn't being spent. If we were paid in food, we should have to eat it or it would deteriorate! The purpose of saving should be investment - not gambling on asset prices. The latter is what building society saving has been funding for the last 15 years.

    Investment means diverting RESOURCES, not just money from consumption towards creating productive capacity and meaningful R&D.

    There have to be structural changes to our financial system to stop the recurring cycle of credit/debt financed speculative asset bubbles.

  • Comment number 74.

    73:
    "I don't agree with John from Hendon about interest rates ... The purpose of saving should be investment - not gambling on asset prices. The latter is what building society saving has been funding for the last 15 years"

    Ok, a few points you've got totally wrong.
    1) Banks fuelled the housing boom not the building societies. Banks lent £800 billion of Foriegn Wholesale funds in get rich quick (via commission) lending. They then repackaged the debt and sold it on and made commission again. Nothern Rock btw is a Bank not a building society.
    2) Building societies are limited in the ratio of savings to lending ratio - that's why they have been stable. While there is some point in saying lending ratios to capital outlay were far too optomistic, the very fact building societies did not need state aid speaks volumes.
    3) Interest rates on savings needs to be high enough to sustain savings or guess what - we'll all just lend money and where would we be then ?
    4) Without savings banks/building societies will not have the funds available to lend for investing - short of foriegn lending which can be removed which got us where we are now.
    5) Speculative bubbles come directly from the fact government/local authorities and the private sector colluded into forcing the markets hand on housing. Pretty much as it is currently being done by the quotes of "End of recession". Note how ALL the press are sounding out that the "Green shoots" of recovery are showing. Yet NO ONE has highlighted that £80+ billion has been spent by the BoE over the last 3 MONTHS via the equity relief scheme. On top of this the BoE is due to vote on extending the £150 billion scheme. What does this mean ?
    1) The current climate is as artificial as the last 6 years of wholesale funded boom.
    2) When the scheme ends, as it must, we face even bigger debts.
    3) We'll face Gordon Brown recession mark II - new and improved over mark I.

    We have to pay the piper within the next year (election coming ?) or so and NO MATTER who is in power that means higher taxes and/or lower spending.

    I just watched an interview with the ex owner of Hedge fund from the US stating that US spending cuts must amount to 9% of GDP for the US to start to cut deficit spending - as it must.

    Note the LACK OF ANY COMMENT from the media,,,, one wonders about how you can miss the Godzilla in the room.

    I do whole heartedly agree with you that the money should have gone into industry, R&D and infrastruture. Stock markets have never performed - especially when you consider the tax benefits gained from money going into pensions. The stock market is nothing more than a gamble - the whole financial system just doesnt work, other than getting a very select few VERY rich.

  • Comment number 75.

    Superb post #74. As for the recruitment consultant, he or she is blind to the need to pay back this debt. Brown is trying to dodge the bullet by moving the start of the payback to 2011. Politically, it would do the Tories (not Cameron) no harm to lose the next election as one of the three 'hard choices' will have to be exercised - default, inflate or austerity. The Tories are right to say the latter is necessary. The question is whether they have the political will to take on the public sector unions.

  • Comment number 76.

    It's been along time coming ,but the squeezing out of leaverage I think is part of a more general process.
    Since the 1970's and the birth of modern corporate management theory management have focussed upon size to the detriment of efficiently managing the bottomline. Profit.
    Morover, anyone looking at the last 30 years can see the rewards for chasing size have become selfseeking.
    Not that management are solely to blame. Shareholders have an aggregate holding time of under 1 year. They have also become geared up to chasing a capital gain based on a 'quick' uptick in company size rather than a dividend.

    If ever there was time to stop chasing capacity/size this is it as the world is grossly oversupplied in many industries.If ever there was a time for management to focus on profits this is it.If there was ever a time for shareholders to rein in management rewards this is it.And if there was ever a time for management to focus once again upon returning value to shareholders via the dividend route then this is it.

  • Comment number 77.

    Osbourne 'flipped'



    The London house that was George Osbourne's designated second home before he "flipped" to his Cheshire farmhouse. The disclosure adds to pressure on his boss and cycling pal David Cameron.

    (450,000 pounds loan on expenses)

  • Comment number 78.

    75 I cant see how it would "do the Tories no harm to lose the next election" as you have suggested. That would mean we would be stuck with Gordon Brown and Lord Snooty and their policies for another five years and we would all be buried under their mountain of debt and gross mismanagement of our lives and of our economy.

    Whoever comes in there has to be a long period of austerity as you suggest, but the attitude of Derek Simpson from UNITE to the Cheltenham and Gloucester closures was interesting. There was very little of what I had expected as a bellicose outburst and warnings that would have accompanied such an announcement - reality might be sinking in to the fact that in many small towns like mine we have ten banks or building societies, many them duplications and surplus in the new world of on-line banking.

    We need to do a thorough review of all our businesses, both private and public, to make sure that we are equipped to meet the difficult future, both from the crucial need to stimulate growth, which is much more important than simply cutting costs, and in eliminating waste. The Public Sector unions may put up some resistance, but they cannot win in the long run. 59,000 people managed to get to a second rate international at Wembley last night despite the tube strike.

    I sggest we also need to stop contemplating our navels on high finance and get down to some simple choices about how we are run, by whom, and what they do to meet our needs.

  • Comment number 79.

    As an Owner / Director of a limited company employing around a dozen staff, each and every year I have a battle with our accountants and our auditor (yes i get the accounts audit by a seperate accountant as the major share holders are friends and family) because we run on a cash surpless and not of debt.

    Every year I get told insteal of having 1/3 of a years turnover in the bank for optimal gains I should run on around a years turnover in debt. And as the retaind cash is retained profit I should declare a one off special dividend of around 1 and a quater times our turn over to get us to this "Ideal" debt level.

    Of cause being a cash rich limited company I have had a cushon for the down turn and as it stands there are NO director or owner garantees so if the company does go belly up no one will lose their house.

  • Comment number 80.

    This looks like a bit of a tease. Not sure whether it's GO or RP (or both) doing the teasing. I can think of a few questions raised straight off by GO's quasi-proposal.

    1. Will the same rules apply to public sector debt? Will the government tax itself? This might sound a bit academic, but if the same rationale were adopted in the public sector it would raise the effective cost of capital for public sector projects by the tax rate (as all public sector projects are debt-financed). Would the additional costs form part of departmental expenditures, and result in those departments having to find compensating cost reductions to keep their overall spending in line with existing spending forecasts?

    2. How will interest income be taxed in the hands of the recipient? If interest payments are no longer allowable deductions against tax, then fairness would suggest that interest income ought to be non-taxable for the recipient. This is the case anyway for many investors in debt instuments (eg pension funds, ISAs invested in bonds). However, adopting this policy would be a neat way of attracting the "grey" vote, ie pensioners who have seen income reduced as a result of very low interest rates. Tax-free income on highly-rated corporate bonds suddenly look very attractive versus other forms of saving. I also seem to remember that the Conservatives briefly flew the kite of how to provide greater savings incentives generally. Making interest income on corporate bonds non-taxable would help do this. It would also guide savings to a relatively conservative (lower risk) asset class.

    3. What impact would GO's suggestion have on mutual organisations that everyone seems to regard (for no good reason in my view) as somehow "superior" business structures to limited companies. Mutuals do not issue equity, meaning potentially all payments related to their capital base would not be tax deductible. That would put them at a competitive disadvantage to organisations that can issue equity.

    4. Actually, GO's suggestion would cause major problems if applied universally. It would make banks' interest expense non-tax allowable for instance, resulting in less credit available (not all bad but could easily be if the amount of credit available is below the optimum level for the economy), and would require interest income (ie the rates charged on loans to customers) to be higher.

    I suspect 4 could be handled by specifically exempting certain business from the interest taxation regime. Some entities caught by 3 could also be covered this way, eg building societies. However, others would be badly hit for no good reason, eg the Co-Op would possibly be caught by GO's proposal. We just can't tell from RP's teaser, and it would be nice to know more precisely where GO intends to apply his proposals.

  • Comment number 81.

    Openly shutting a door after the horses have bolted could be played as a voter winner. Like in the past, I am sure, some other doors will be quietly left unlocked or new hidden doors created. Afterall, there are plenty of times to prepare.

  • Comment number 82.

    72. yeah_whatever wrote:

    "Recently Steve Ballmer told Obama that his attempt to stop corporate tax dodging would mean that he would move Microsoft out of the US. Where to, and whether he'd go there too wasn't said."

    Taxation of multi-nationals, especially those dealing in intellectual properties such as software, is fraught with challenges for all governments. We can be pretty sure that Ballmer is not bluffing though. Microsoft already does a great deal of development work outside the US, a lot of it in Ireland where MS has about 1,700 workers. Similar organisations (EBay, Google, Yahoo) also have their European HQ's in Ireland. What does Ireland have? Low headline rate corporation tax (12.5%), no rules on controlled foreign corporations (ie don't try and tax non-Irish revenues), no transfer pricing rules, together with attractive tax rules for intellectual property rights, and generous R&D tax rules. It would not be hard for MS and similar firms to make their operations here into the global HQs and run all the HQ functions from here. These functions do not require large numbers of people to run, but they can significantly shift the tax jurisdictions in which tax is paid across the overall group.

    Closer to home, the UK government has tried to make non-UK profits of UK-headquartered groups subject to UK corporation tax. Result? A host of companies announcing that they're moving their HQ to Ireland. The list includes Shire (FTSE250 pharmaceutical group), Henderson (fund management group), Charter (FTSE250 engineering group), all of which have now sheltered their non-UK profits so that they are not remitted into the UK and cannot be taxed there. Even Vodafone has threatened to do something along these lines. So there are a range of businesses that will move their headquarters if their current tax regime becomes unwelcoming.

    As for whether Ballmer personally would move offshore, he doesn't need to. So long as the formal management of MS was fully offshore, eg Board meetings held offshore, he would avoid any tax legislation that the US could possibly pass. Let's say MS relocates to Ireland. Ballmer might like to visit to have a couple of meetings, play a bit of golf etc. He'd have client meetings in Europe anyway. However, he wouldn't have to come over if he didn't want. Worst case he needs to attend the Board from outside the US, which would mean a one hour drive away from MS's current HQ in Washington State into Canada.

    It's easy for "new economy" businesses to avoid tax if they feel the need to do so. Obama isn't stupid. He'll backtrack on his plans where they will encourage offshoring. In fact, he'll probably come up with a regime that encourages everyone to move there!!!


  • Comment number 83.

    "Obama isn't stupid. He'll backtrack on his plans where they will encourage offshoring."

    Uh, US companies have been offshoring like mad for the past 15-20 years.

    MS/Intel et al moved their work to Ireland because NO TAX was paid on some things. The only way to beat "no tax" is to give money away.

    You want the government to collect more taxes from you???

  • Comment number 84.

    Maybe we should provide MP's with an incentive to remember who they represent by for example - if we have full employment we can have 655 MP's with unemployment at say 10% we would have to remove 65 MP's from parliament. That would help them focus on helping people they represent.

  • Comment number 85.

    83. yeah_whatever,

    I think my final point maybe wasn't clear. I'm saying I think Obama will change some of his tax plans so that they don't encourage further offshoring. There's a lot more to offshoring that just tax anyway. The key drivers are overall costs, and market access. For MS etc, a key driver would have been access to the EU, thus ensuring avoidance of any EU import duties. Most of the offshoring to China is simply down to wage rates being about 95% lower than in the US/Europe etc.

    Just one further point on tax. I don't agree that Obama cutting (or not increasing) corporate taxes automatically means others pay more. If he were to cut such taxes, it may encourage US firms to repatriate work to the US. The Irish experience of lowering corporate taxes has certainly been a win-win. For instance, an entire new industry was built on the basis of low tax (mutual fund administration). It employs about 25,000 people here (or almost 1 per cent of the entire workforce). Pre-crash Ireland had seen inward migration of over 400,000 people (10 per cent of the populaion) in the previous 10 years. These people (I'm one of them) were needed to fill vacancies arising from the economic boom. Whilst much of it (too much) was nothing more than a wild property bubble, there have been a huge number of new economy jobs created as well (MS, EBay, Google, Yahoo etc etc). So, firms are attracted by low corporate tax, creating more jobs whose workers then pay income tax and social welfare levies on their income, VAT on most things they purchase, very high stamp duty on house purchases etc. The amount we each have to pay is not higher because of lower corporate taxes because there are more of us to share the overall burden. In fact, Ireland's corporation tax revenue has itself been higher since the rates were cut to 12.5%, as more companies have located here. So, if anything, we're paying less in income tax, VAT etc than we otherwise would.

  • Comment number 86.

    "I think my final point maybe wasn't clear. I'm saying I think Obama will change some of his tax plans so that they don't encourage further offshoring. There's a lot more to offshoring that just tax anyway. The key drivers are overall costs, and market access."

    OK, yes, it wasn't clear at least to me.

    But the key driver to offshoring is the short term uptick in the profits which leads to a short-term uptick in the stock price.

    Increased profits means bigger CEO bonus.

    Increased stock price means CEO stop options are worth more.

    As long as the CEO isn't going to hang around for the correction, this can only be good.

    For them.

    When everyone in the first world is unemployed, who is going to buy the Thai-created GM cars in the first world?

    That problem, though, is years in the future, so as long as you can cash in in the short term, it's somebody else's problem.

 

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