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What's a fair contribution from multinationals?

Robert Peston | 10:29 UK time, Tuesday, 30 November 2010

A recent McKinsey report From Austerity to Prosperity [3.19MB PDF] says this:

"Multinationals may only account for fewer than two percent of UK businesses, but they drive overall economic growth and innovation at scale, accounting for 80 percent of UK R&D, and growing productivity eight times faster than smaller firms. Government should work with leading multinationals to implement a ten year plan to make the UK the most attractive European location for multinationals, addressing skills, immigration, infrastructure and tax."

I suppose at this point I should point out the McKinsey and its partners have grown fairly prosperous working for multinationals. And some would say that a government ignores the wellbeing of smaller companies at great peril - and would point to how Germany, with its army of smaller manufacturing businesses, is powering out or recession. But the consultancy may have a point.

George Osborne

Certainly the Chancellor, George Osborne, seems to think so: he claimed yesterday that his planned reforms of corporate tax would "improve the attractiveness of the UK as a place for the private sector to locate and invest."

There are two elements to what Mr Osborne wishes to achieve, in tax changes that won't be legislated till 2012.

He wants multinationals located in the UK to feel more confident that the tax they pay here will be levied primarily on what they earn here, rather than on their overseas earnings. It was the concern that global earnings were subject to UK tax that, for example, persuaded the UK multinational WPP to relocate its domicile to Ireland.

Or to use the lingo, the chancellor has signalled a move to a more territorial basis for taxing multinationals profits.

He also wants those multinationals to conduct as much research and high-value production in the UK as possible, because of the putative benefits brought from the creation of high skilled and highly rewarded employment.

So Mr Osborne has said there'll be a new special low corporate tax rate levied on UK operations that exploit research carried out in the UK.

What is there to say about all of this?

First it is probably not quite the tax revolution claimed by Mr Osborne. The Treasury signalled this direction of travel before the election, when Labour was holding on to office by its fingertips.

Second, tax specialists complain that Mr Osborne is not being bold enough: they say, for example, that the so-called "patent box", the device for lowering the tax on profits earned from UK intellectual property, will benefit only a limited number of firms.

The patent box is likely to be a great boon to pharmaceutical companies, such as GlaxoSmithKline, which yesterday gushed on the importance of the research tax break, and confirmed it is investing up to £500m in expanding manufacturing capacity and in a new venture capital fund.

But Chris Sanger, head of tax policy at the accountants Ernst & Young, said:

"Despite pressure from UK businesses, the coalition has retained the policy of the previous government in relation to the development of a UK patent box. The reduced rate of tax will continue to apply only to patents, rather than a wider range of intellectual property such as royalties and brands...This will be a disappointment to multinationals outside of the pharmaceutical industry...Multinationals may be tempted to build new centres of development in other, more attractive countries".

Mr Osborne's corporate tax policy is however vulnerable to a more fundamental criticism, that it doesn't face up to the fiscal reality of a global economy dominated by multinationals, which is that trying to force them to pay tax in a particular country is like endeavouring to squeeze a giant blancmange into a small box: the more you try, the bigger the leaks.

That carries two conclusions. Either countries like the UK should go down the Irish route, of slashing the domestic rate of corporation tax and turning a Nelsonian eye to overseas earnings; or Mr Osborne should recognise (however painful that may be) that the days of national sovereignty when it comes to taxing multinationals are well and truly over, and there is nothing for it but to try to harmonise global corporate taxes.

The chancellor's ambition of "fairly" taxing multinationals' UK activities and profits, and imposing a controlled foreign companies charge on profits that in some sense have been "artificially" diverted abroad, is a worthy ambition, many would say. Whether it's remotely deliverable is altogether another thing.

Comments

  • Comment number 1.

    Just the first move in this chess game. To much tax and off they go. Lets wait and see.

  • Comment number 2.

    Well Unilever started from a guy in his father's small grocery shop.

    McKinsey and its partners wouldn't know that.

  • Comment number 3.

    FRAGMENTS OF THE GREAT LIBERTARIAN MONEY PUMP?

    Our governments should be held responsible for the outcomes and the way these seem to have worked out is that over the past 20 years residential buildings asset value as 'households' have almost tripled (1991=£1.2 trillion, 2009=£3.8 trillion - 1997=.£1.3 trillion) whilst the same class of assets in the Public Sector haven't (1991=89 billion, 2009=111 billion Blue Book 2000, and 2010 Tables 10.10, 10.11). In the same period, the asset value for agricultural and commercial buildings in the public sector and as households didn't change in the same way. Still, perhaps massive immigration didn't increase demand there?

    Was the objective to reduce national sovereignty across the EU states so that people couldn't get in the way of the likes of Tesco etc to run business without interference, as set out in Lisbon Treaty human rights?

    Was massive credit issued secured against inflated assets (driven in part by mass low skilled immigration pushing inner city demand), securitised to make the financial sector massive profits for services rendered, and then, when the bubble was popped as the Lisbon Treaty was signed in Dec 2007, governments had to implement 'austerity measures' meaning cutting Public Sectors, i.e general government, which further reduces people's say nationally?

    Somehow, this all seems to come back to the Lisbon Treaty being an alternative EU libertarian Constitution serving the interests of the libertarian financial service and retail sectors and those who have been acting in their political interests? Revenue for Tesco alone last year was about £41 billion, which, along with other retailers and the banks, is no doubt where a good share of government revenues in taxes will find its way to in the end no doubt (disposable income) anyway..

    But then, who could present the evidence to convince enough people that this isn't just a paranoid conspiracy theory?

    https://www.bbc.co.uk/blogs/newsnight/paulmason/2010/11/the_first_law_of_twitter_every.html

  • Comment number 4.

    The idea that multinationals are great at driving innovation is dubious. A lot of their so called R & D is aimed at making marginal improvements to existing products. They are often hostile to the development of really innovative products, for the obvious reason that they have a great deal invested in the manufacture and marketing of existing products and the prospect of the development of replacements fills them with alarm. They have even been known to buy up patents with no intention of exploiting them themselves, for the sole purpose of preventing new ideas being exploited by rivals.

    Many inventors, who have tried to interest large companies in their ideas, have found this to be impossible. Part of the reason for this might be that large companies tend to be controlled by accountants, lawyers and other financial experts, who are risk adverse, and have little personal technical expertise.

    SMEs, which are still managed by their founders who do have technical knowledge, and have not yet to carved out a substantial share in the market place, are often much more innovation friendly.

    The ability to play one government off against another gives multinationals great power. World free trade agreements need to be complemented by EU style rules, extended to include taxation regimes, are urgently needed.

  • Comment number 5.

    I am not sure why we are taxing profits as more marginal profits means more investment and more jobs.

    Why don't we just tax corporate carbon released in the UK or some other detrimental externalities?

    This would mean less pollution, a better environment, and a competitive advantage in futuristic high tech and creative jobs of the new low carbon economy.

  • Comment number 6.

    For the administrator/moderator:

    "2. At 11:28am on 30 Nov 2010, You wrote:"
    used to be
    "2. At 11:28am on 30 Nov 2010, Pietr8 wrote:"

    With the large number of blogs the change makes it difficult to find my blogs using CTRL F. Is there any chance your programmers could change it back please?

    Thanks for your help.

  • Comment number 7.

    There is not a lot of choice really.

    If we tax these large multinationals too much they go elsewhere and unemployment stays high here or we accept that we need the jobs and the tax will come from those who are employed.

    Looks like we can't have it both ways.

    Large multinationals can create new jobs quickly but there is certainly a case for helping those businesses who can create and expand home demand and lesson the need for so many of our goods to be imported.

  • Comment number 8.

    Multinationals. If you don't give them a handout, they won't set up shop. And promises of "investing up to £500m....." etc don't hold much water with me. Call me a disbelieving cynic but things can so easily change when the tax concessions, rate reductions and favours are not as lucrative as elsewhere. I can see the value in having a big personal stake in maintaining a commitment to the future of a society e.g. as you pointed out ".....Germany, with its army of smaller manufacturing businesses..." Multinationals often seem to have the luxury of avoiding such a commitment.

  • Comment number 9.

    "What is there to say about all of this?"

    Lets have a 'free' market based economy dominated by multinationals who can continue to depress wages and are rewarded for doing so?. Increasing poverty, selective education for those who can afford it, the unemployed, underemployed and welfare dependents vilified because there are no jobs or houses for them and it is all somehow their fault, poorer public services, increased crime, growing inequality, growing social unrest, crime, mental illness, alchoholism, drug use... blah blah blah.....

    Sounds great. Bring it on.

  • Comment number 10.

    Corporation Tax is another area whereby EU harmonisation should be achievable.

    That is, CT should be set at a reasonable rate across the EU, a bit like a federal tax on businesses.

    Then multi-national companies can best decide where within in the EU to run their businesses based on other factors.

    As it happens, some multi-nationals have got some very big decisions to make about their commitment to (London) before the end of the year, so we'll soon see if Osborne's tired rhetoric about being 'open for business' has had any positive effect.

  • Comment number 11.

    Somebody commented on TV this morning that once British Airways merge with Iberian all the taxes they pay will go to Madrid not Great Britain (presumably they get a better deal) Bit of a cheek to keep 'British' in their company name don't you think ?

  • Comment number 12.

    A plea to avoid naivety. Multinationals will always play the tax game. Transfer pricing enables them to almost create whatever profit suits them where ever and the process of relocating to cheaper tax friendly countries will continue even if we adopt Irish Corporate Tax levels. Two things are needed - a trade 'war' where there is regulation and tax on trade and international campaign for more regulation of multinationals.
    SME's may not be an alternative to m/nationals but clearly that sector is worth nurturing as it will be a source of future employment.

  • Comment number 13.

    Is this the same MR.OSBORNE that amongst other gaffs stated in 2009 that EIRE was a template for the UK.........t'be sure he'll be quite free and easy with all our hard earned DO$H, big or small.............

  • Comment number 14.

    The secret behind Germany has little to do with the size of any individual concern.
    The country owes its success to high standards of education, and rigourous technical training, insistence on quality,lack of mediocre management, and Unions dedicated to members well being, not some abstract political agenda.
    Given the choice between efficacy and convenience the German will usually choose the former,whereas the British will usually opt for the latter.

  • Comment number 15.

    Over the coming two or three decades the UK is going to become more and more reliant on SMEs and 'local' businesses.

    Firstly our essential needs - energy, food etc - will be increasingly produced here in the UK, as importing becomes progressively more expensive through devaluing currency and increasing transportation costs.

    'Non-essential' goods will likewise be made here in the UK as again, importing becomes less viable.

    Globalization is over and 'multinationals' will be increasingly marginalized and irrelevant - if indeed many survive at all.

  • Comment number 16.

    I fully agree with pietr8 (post #2). "Attracting multinationals" means attracting big, mature businesses that are in a logic of maximizing profit and market share, and don't give a damn about local interests. In the best of cases they try to be "economy neutral", in the worst of case it's a very different picture. For instance, Oracle France has recently come under the fire of French tax authorities because, although Oracle is one of the most profitable companies in the world, Oracle France has consistently lost money for years - benefits were siphoned off to Oracle Ireland (12.5%, remember), from where all licences to France were sold. So much for the French share of taxes ... and of course, all French salaries stagnated ...

    Rather than "attracting big multinationals", growing them would be more ambitious, more stimulating and more profitable. It doesn't take long to grow a multinational company these days when you are talented and lucky. Or has the British talent for creating multinationals gone down the drain with everything else?

  • Comment number 17.

    Multinationals can only ever represent part of the solution to the needs of this country to rebalance its economy back towards productive value adding activity.

    Experience would suggest that if the economy became too dependent upon multinationals then we would replicate the problem we have had with over-weaning banks. In other words an incontinent policy of encouraging multinationals to set up UK establishments could turn a potential solution into a major problem.

    The clue for future industrial policy has to be found in the word `balance'. Yes, multinationals might be a help in getting things moving but they are not the be all and end all. They have a purpose but so do other businesses.

    Our objective has to be the development of UK businesses that invest in the UK, that employ Uk citizens, and that bring work to UK towns. We need to encourage SMEs to grow, we need to get the City to invest in SMEs, and we need to facilitate start-ups.

  • Comment number 18.

    How's about being even more radical?

    Scrap ALL taxes (almost) and EVERYBODY pays for EVERYTHING - just like your mobile, PayAsYouGo.

    Government then takes a small levy (ok tax) on everything, we eat, drink, wear, use or purchase.

    At least it "levels the playing field" and nobody is "hard done by"!

    Tax revenues go up (nobody can dodge them - no exemptions for anyone as with VAT) and businesses can either locate here or elsewhere.

    QED

  • Comment number 19.

    Tax haven status. Another cheap, quick fix to favour the elite. Typical. We desperately need to roll our sleeves up, get down to real work and build our industry from the bottom up. Aspiration, ingenuity and hard graft will create prosperity, but you don't learn these things at Eton.

  • Comment number 20.

    Very Interesting article from RP.

    Where is this leading? As RP says its possible that the days of that the days of national sovereignty when it comes to taxing multinationals are well and truly over.

    It seems the German economy. with its army of middle sized manufacturers has it right again. Limiting exposure to the (tax) whims of multinationals.

    I remain deeply sceptical about the govts. ability to "harmonise" tax levels internationally. This is the same harmonisation which is bandied about with regard to bank bonuses. Would an international institution be able to create such a level playing field? If it did have that power then it would be very powerful indeed - more problems.

    Do people really want to work for the mini-countries that are multinationals with their lack of democracy? Once again people risk being punted about by virtual dictators at the heads of these organisations who have limited concern with the externalities they produce.

    Reducing taxes for Multinationals would solve some problems, such as employment but I remain sceptical about the extent to which they really contribute to R & D. As Stanbloggers insightful analysis points out - Multinationals have a great incentive to put the breaks on true development. I have mentioned it many times before that this form of enforced obsolescence prevents true innovation whilst a retarded process of staged "progress" guarantees a slower rate of development as we all engage in the merry go round of superficial advances orchestrated by marketing depts. I suspect the car industry (abetted by the petro-chemical industries) is a prime example.

    Of course handing the reigns of power over to multinationals also fits squarely with the present governments ideological views. The (recent proposed) weakening of consumer rights facilities pushes the whole idea of big society into the realms of empty rhetoric. More multinational power increases that ten fold.

    The UK needs independent R & D and smaller companies who are more accountable to their own employees and consumers (Companies who also aren't subject to the panicky whims of shareholders). Interesting to see that the multinationals appear to have ridden out the recent economic woes unscathed. Meanwhile public services which should be inviolable have gone to the wall.

    Multinational investment is only a short term solution.


  • Comment number 21.

    I'm quite surpised at the support for multinationals. Although i have only very briefly skim read the report the so call growing productivity eight times quicker than small firms is as a result of "restructuring". With a private sector looking to lose 400,000 jobs a stratergy of jobs being lost in commerce doesn't see great. Who actually has benefited from productivity improvements, it doesn;t seem the consumer, food is tasteless compared to years ago when butchers, fishmongers and green grocers took pride in what they sold, colthes today fall apart on the first wash, everting electrical seems to need replacing evert couple of years. Its not the suppliers whoes margins are squeezed lower and lowe. Its not really the workforce. Multinationals will always abuse their power by dominating the small guy. With reference to the people mentioning unilever , didn't they fairly recently win a most unethical comapny in the UK award

  • Comment number 22.

    A blog designed to bring out the big business bashers who have probably worn their fingers down typing endless posts about banks.

    A much more interesting question is whether we should bother taxing corporates at all at least on profits. If they pay salaries we can tax the salaries, if they pay dividends again that can be taxed, if they sell goods and services to consumers that generates VAT.

    I would simply get rid of corporation tax (and all the related benefits and reliefs, carry forwards, backwards, sideways of losses) but increase carbon tax and landfill tax and similar taxes.

    Now might be a very good time to look at this. A large proportion of corporation tax was paid by the financial services sector who will be carrying forward losses for years so little is likely to come from them, so abolishing corporation tax might not be that expensive.

    If it also results in large numbers of companies coming here and employing lots of people it could even be tax generative.

  • Comment number 23.


    From 38degrees.org.uk:
    George Osborne likes to say "we're all in this together." But last week, Channel 4 revealed that he's avoiding paying tax. He pays accountants to help him find loopholes which Channel 4 reckon will help him dodge £1.6million. These kind of "legal tax dodges" cost the rest of us billions.

  • Comment number 24.

    Anyone who has ever worked for a multi national know they are a cynical bunch who would make changes in investment decisions for pennies and are often very short sighted....

    Rather than chase the $, I would aim government investment at SOME small to medium size companies who the potential to become genuine world beaters .In the long run they would be far better bets and are likely to stay within the UK for years to come.

  • Comment number 25.

    Hi Folks.

    Yes, here we are all trapped on Planet Earth.

    Yet again the subject matter of Roberts Blog gives me a chance to bang on about the inequities of the tax system advantaging Large corporations compared to SMEs. Firms like Alliance Boots can have its head office in Zug in Switzerland and only pay a few percent Corporation tax (reference to File on 4, two weeks past), whereas a small UK SME cannot move its tax juristiction and ends up lumbered with 20 % tax.

    Large firms are all moving away (like rats leaving a sinking ship) from the UK @ 28% tax rate, France & Germany @30% tax rate, to locations such as Eire@12.5% and Switzerland (3%- 20%) .

    Unless pressure can be applied on these juristrictions to play fair (which it probably cannot) then we just need to be competitive with our tax rates (Which George Osbourne has tacitly accepted in his budget announcement, when he announce a reduction from 28% to 24%).

    This will benefit the owners of the corporations but ultimately will mean a higher percentage of the total tax loading falling on to individuals. (Who, if they receive dividends will end up losing the money anyway in higher income tax receipts).

    The only solution is to be a mobile citizen and become a tax exile, live forever on the move. - Didn't the Flying Dutchman try this? Not my idea of a life.

  • Comment number 26.

    Robert

    Any tax concession to one group or class of taxpayers is a charge on all the others and in consequence distorts the operation of market forces.

    That fact ought not to be lost sight of. It doesn't mean that no concessions are ever justified, but it does mean that the purported justification should be scrutinised very warily.

    I'm staggered by the figures you quote from the McKinsey report:- that "Multinationals ... account for fewer than two percent of UK businesses, but ... for 80 percent of UK R&D, and growing productivity eight times faster than smaller firms."

    If these figures are correct, how does it come about that Germany (which has a far higher proportion of SMEs than Britain I believe - and thus a reciprocally-lower proportion of multinationals) doesn't have less R & D and a lower-growing productivity rate than Britain?

    Either the figures are wrong or - if they're right - Britain's SMEs invest startlingly less in R & D and grow their productivity far far slower than their German counterparts.

    The latter conclusion seems to me to ring truer, given the higher emphasis traditionally given within the German culture to science and technology, and the higher prestige attaching to those disciplines.

    If so, we have a very serious systemic problem which will by no means be addressed by the government bestowing (unneeded in my view) corporate welfare on the multinationals - as McKinsey recommend (they would, wouldn't they?). On the contrary, if anyone needs to get the benefit of tax concessions it's the SMEs - designed to provide them with the incentive to engage more in R & D and to grow their productivity faster.

    That begs the question as to whether tax breaks are the the best way to achieve such an outcome or whether the money wouldn't be better spent on re-balancing our educational priorities and increasing our output of scientists and technologists. I'm not sure which is cause and which is effect, but I get the impression that German SMEs can never get enough - so why not ours?

  • Comment number 27.

    It will be interesting to watch the developents in the NEWS CORP bid for BskyB.NEWS CORP is a Delaware registered company and taking 100% control of its 40% owned subsidary would move the largest and fastest growing Media company away from the clutches of George Osborne, I wonder if this was discussed pre election in return for favourable Media support from Mr Murdochs empire?

  • Comment number 28.

    First the banks and now big business whingeing that they're misunderstood and if they get taxed too much they'll be heading for pastures new. All they ever do is put the ball back in the govts. court, they never seem to come up with anything constructive or positive other than the same old less tax, stop moaning about our bonuses, we're more than capable of regulating ourselves so don't interfere and why do the prols want or need a pay rise. Some people might think they're only interested in themselves and have something to hide, as if.

  • Comment number 29.

    Message 9 from EconomicsStudent

    You show far too much insight to be a big success in Economics unless you learn to have to play their game.
    You are wise indeed and the best of luck to you.

    (The important factor is the short-term, blinkered, heads-down aspect of what now passes as widom.)

  • Comment number 30.

    22. At 13:01pm on 30 Nov 2010, Justin150 wrote:
    "A much more interesting question is whether we should bother taxing corporates at all at least on profits. If they pay salaries we can tax the salaries, if they pay dividends again that can be taxed, if they sell goods and services to consumers that generates VAT."

    I would do it the other way - set corporation tax at 10% and abolish all the tax on dividends as the dividend payments are part of what goes into personal pension funds. Agree though, get rid of the offsetting of losses against future profits otherwise it becomes very easy to legally avoiding tax due through making a loss in year 1, a profit in 2, a loss in 3, a profit in 4 etc

    If tax is kept simple then it is not worth the cost/effort to try and avoid

  • Comment number 31.

    #22 Justin150 wrote:

    'A much more interesting question is whether we should bother taxing corporates at all at least on profits. If they pay salaries we can tax the salaries, if they pay dividends again that can be taxed, if they sell goods and services to consumers that generates VAT.'

    ------------------------------

    Do you aspire to live in a great big shopping mall?

  • Comment number 32.

    26. At 13:16pm on 30 Nov 2010, torpare wrote:
    Any tax concession to one group or class of taxpayers is a charge on all the others and in consequence distorts the operation of market forces.
    ---------------------------------------------------
    I have always considered concessions and loopholes to be like a nod and a wink to fare dodgers. They make the trains look more full but the other passengers are paying for the infrastructure.

  • Comment number 33.

    you cannot "win" with these Goliaths as they have no roots,no loyalty,no morality for anything other than squeezing as much profit as possible from their businesses. Some may say if you cannot beat them , join them - how about if you cannot beat them, deny them access to your markets until they agree that such access has in itself an intrinsic monetary value to be paid for via investment ,taxation etc, after all how many cold cures can Boots sell to the people of Zürich? How many of the Irish are going to be buying new computers to manage their portfolios?

  • Comment number 34.

    26. At 13:16pm on 30 Nov 2010, torpare wrote:

    "That begs the question as to whether tax breaks are the the best way to achieve such an outcome or whether the money wouldn't be better spent on re-balancing our educational priorities and increasing our output of scientists and technologists. I'm not sure which is cause and which is effect, but I get the impression that German SMEs can never get enough - so why not ours?"

    Because our education system has been used as a social engineering tool rather than teaching the essential knowledge needed in the real world

  • Comment number 35.

    UK earnings, whether income, salary, sales, profits, should be taxed a standard UK rate regardless of the status of the business and whether the owner is domicile in the UK. Residency status should be irrelevant to how UK earnings are taxed.

  • Comment number 36.

    Couple of points:
    1) Essentially agree with #4 on the Intellectual Property front. Remember also that even if multinationals use UK expertise to create & develop IP, employing UK R&D people, they can also move this IP to other parts of the world to exploit it's real value and presumably profit (and someone else wil get the tax). In extreme, it is not unknown for foreign-based companies to buy UK ones, whip the IP away for its own use back at base, then close the UK operation down. Not quite sure how the "patent-box" mechanism would take account of this...

    2) Germany's army of small firms essentially feeds Germany's army of big firms, many of which have been, and remain, protected from outside takeover, by golden shares etc. owned by the country or states, or less formal mechanisms and barriers. In essence the supply network of smaller firms are also protected. While protected, they have been able to buy foreign firms, sucking in new markets, IP and infrastructure. This makes them quite an influential bunch in Germany. For the German economy great, for other more open economies, perhaps less so.
    Deutsche Bahn is a case in point - 100% state owned "plc" or "AG" buying UK railway freight and passenger assets, without the opportunity for reciprocation. Ever heard of a foreign takeover of a well-known German firm ? Not many I suspect.
    Other German born-and-bred multi-nationals know that it makes sense to stay German and support the economy, when they are protected so well - as do the voters. It's a reinforcing mechanism for the economy, partly driven by centries old conservative culture, not something you can copy and paste.

    The UK, by comparison, seems to thrive on constant change - which has it's exciting UPs (financial sector taking the credit) and depressing DOWNs (other sectors taking the hit e.g. our small manufacturing firms). I suspect though this is why our "inventiveness" and IP is driven (born from it's mother, necessity).

  • Comment number 37.

    PaulattheRocks @ 13:12 - trouble is why should Switzerland (for example) change its corporation tax rate?

    It doesn't need to that's the thing. Same goes for any jurisdiction that has lower corp tax rates than the country you live in - which you could argue are all tax havens.

    There is a strong argument that high tax rates stiffle growth and certainly offer no incentive for any business (be it multi national or SME) to set up in that location. Ignoring the logistical issues why would the SME in Wigan making widgets (who has just won a multinational order) not relocate say Ireland where the tax rate is considerably lower? To me its a no brainer.

    Much as it pains me to admit it I think Boy George has a valid point regarding MN's and Robert's analysis is pretty much spot on.

    The thing is that Britain wants to attract all types of business and having "uncompetetive" tax rates will not help one jot. Also comparing the UK to Germany (as some posters have done) is not helpful as the Germans had a decent manufacturing and business base prior to the recession - our country certainly did not and does not.

  • Comment number 38.

    "Multinationals... [account] for 80 percent of UK R&D, and [grow] productivity eight times faster than smaller firms."

    Yeah, right! Firstly how on earth do you assess how much R&D small firms undertake? They may file many fewer patents than large firms, I imagine, due to lack of resources. It does not automatically follow the the best response to this is to support large firms over small ones.

    Secondly, many of the big firms of tomorrow are undoubtedly among the small firms of today. If you really want to support the future you might be better off identifying fast growth firms rather than making rather sweeping distinctions based on big vs small. But even that would miss a vital element... Big firms become big because they are good a growing through one means or another. That's not to say they are automatically good at stability, which is the part of the equation that's missing. And when I say stability I mean providing stability to the UK. Survival by upping sticks the minute there's a more attractive tax regime or cheaper place to operate doesn't count.

    I'm not anti-multinational. But these statements from McKinsey seem to be very partisan and rather hard to properly substantiate.

  • Comment number 39.

    Why is there an accepted wisdom that some we have to inport multi-nationals instead of building them here?
    Perhaps if George spent less time on impeding British businesses from growth he wouldn't feel the need to slime up to the cartels so much.
    This Govt seems to have inherited this particular trait from the last government. Watch the brown-nosing of FIFA over the next couple of days.

  • Comment number 40.

    Fair way to tax multinationals?

    Total worldwide income in every country they operate. If this is not done then they will simply use transfer pricing to manipulate their profits to avoid taxation- anywhere!

    Each country in which the multinational company operates then gets together with every other country in which they operate and shares out the tax take!

  • Comment number 41.

    38. At 13:52pm on 30 Nov 2010, Robiati wrote:
    "Multinationals... [account] for 80 percent of UK R&D, and [grow] productivity eight times faster than smaller firms."
    Yeah, right! Firstly how on earth do you assess how much R&D small firms undertake?
    ---
    Agree.
    The reality of this report is that it's *PR for parasites*.

  • Comment number 42.

    You don't seem to have spotted the flaw in the McKinsey report:

    'Multinationals may only account for fewer than two percent of UK businesses'

    The same can be said for the civil Service or the banks.

    A couple of years ago I was a regular user of employment statistics and remember that something like half of the total UK workforce worked for around 250 organisations.

    What matters is the fraction of the workforce which works for multinationals (or fraction of turnover) and not the number of organisations. Quite a few 'british' companies are 'multinational' (banks, BA, BT, Vodafone, pharmas, etc). It would be surprising if fewer than 25% of UK employees worked for multinationals.

    Don't you know that consultants always distort or grossly mis-represent statistics?

  • Comment number 43.

    42. At 14:12pm on 30 Nov 2010, Derravaragh wrote:
    You don't seem to have spotted the flaw in the McKinsey report:
    'Multinationals may only account for fewer than two percent of UK businesses'
    Don't you know that consultants always distort or grossly mis-represent statistics?
    ---
    You're dead right.

  • Comment number 44.

    Osborne is cutting red tape in order to boost employment and the UK economy.
    https://www.mindfulmoney.co.uk/2551/economic-impact/george-osborne-fingers-red-tape-in-bid-to-boost-uk-economy.html
    And whilst bureaucracy is a problem for SME’s and large businesses alike, we wonder whether his proposed measures are enough?

  • Comment number 45.

    'Multinationals account for 2% of UK business...' surely not? The cars on the roads, big Pharma,WalMart and MacDonalds only add up to 2%. I recognise some may be franchises but 2% has got to be a gross undercalculation. This is intentionally misleading
    Perhaps one needs to redefine what constitutes as a mutinational business.
    Agree with @ 42

  • Comment number 46.

    The UK will continue to decline for as long as it continues along the path of being anti-investment and anti-business. We should set a medium term goal of reducing taxes across the board, abolishing income and corporation tax and halving government spending. Look at the pressure on Eire to increase it's corporation tax rate as a condition of the bailout - trying to remove one of the few advantages it has as a country. Governments do not create wealth, businesses do.

    If we stay on the current course, expect to see more wealth, jobs and investment head east.

  • Comment number 47.

    My experience, and I'd be interested in the views of others, is that large multinationals are enmeshed in bureaucracies and politics that make government seem positively efficient. The number of times some companies resort to McKinsey et al speaks volumes, how often do you have to visit the doctor? Furthermore they move jobs and livelihoods from country to country at the drop of a hat driving the nations of the world into a dutch auction on tax rates and one we should not participate in. The one thing that keeps them somewhere is if a country has something they can't get elsewhere. Raw materials, reliable infrastructure and a skilled educated workforce. As far as the last of these goes, what has been visited on HE these past few years is the equivalent of national wrist slitting,

    Yours Aye,

    Graucho

  • Comment number 48.

    47 "The one thing that keeps them somewhere is if a country has something they can't get elsewhere. Raw materials, reliable infrastructure and a skilled educated workforce"

    Where is that place? Certainly not the UK.

  • Comment number 49.

    Unless you believe in the same personal tax rate for all (flat tax), then the proper way to tax corporations is in the hands of the shareholders.

    Let's say I own a share of ABC Company and my neighbour who makes ten times the income I do also owns a share. My share of ABC pays the exact same corporate tax as his. The corporate tax is therefore a mechanism which forces lower income shareholders to pay relatively more tax while allowing higher income shareholders to pay relatively less. In that sense it is what the socialists call "regressive". The income should instead flow through to the shareholders' personal tax where it can be taxed according to his or her income level.

  • Comment number 50.

    The whole reason to be a multi national is so as to be able to play the game with more chips, they buy political influence and trade one country off against another, garnering the best for themselves in just the same way our banks have.

    I know very little about the economics of this game, but "good of the people or country" never enters into the equation.

    Perhaps if we are going to play this game a rebate against the current corporation tax could be arranged based on the tax return to HMRC from employee wages and vat returns in the UK.

  • Comment number 51.

    49. At 15:26pm on 30 Nov 2010, herringchoker wrote:
    "Unless you believe in the same personal tax rate for all (flat tax), then the proper way to tax corporations is in the hands of the shareholders.

    Let's say I own a share of ABC Company and my neighbour who makes ten times the income I do also owns a share. My share of ABC pays the exact same corporate tax as his. The corporate tax is therefore a mechanism which forces lower income shareholders to pay relatively more tax while allowing higher income shareholders to pay relatively less. In that sense it is what the socialists call "regressive". The income should instead flow through to the shareholders' personal tax where it can be taxed according to his or her income level."

    Except what about those companies that do not have shareholders? And why would you want your pension fund taxed as they are probably one of the larger share holders? And why would you want your neighbour taxed more because he earns more? And a flat tax is fairer for, assuming a 10% rate, then the person on 10,000 pays 1,000 and the person on 100,000 pays 10,000 ie 10x as much because he earns 10X as much

  • Comment number 52.

    "39. At 14:04pm on 30 Nov 2010, EconomicsStudent wrote:
    Why is there an accepted wisdom that some we have to inport multi-nationals instead of building them here?"

    Hmmm.......where to begin!?! Despite all the angst and distaste for multinationals expressed here by other bloggers, no-one has yet mentioned the ongoing corporatisation of every part of life (including life itself viz gene patenting). I mean.....it's the way life works nowadays and has been working for...... quite some time. To borrow a phrase from a well known entity on these blogs, 'Start taking notice Sheepole.'

    If you have noticed anything about the way the processes of govt and business have become more and more closely intertwined over the last 25 years, then you will have noticed the recent involvement of the likes of McDonalds, Pepsi, Unilever and Diageo in the formulation of public health policy:

    https://www.guardian.co.uk/politics/2010/nov/12/government-health-deal-business

    This is just another example of the disturbing closeness between policymakers and the beneficiaries of their policies!!! As if the recent destruction wreaked by the banks and their cronies isn't still fresh in most people's minds!?! It is a wholly flawed process that further distances the masses from a real stake in their own existence.

    Which planet is this? Maybe I'm on the wrong one.

    We are in the late stages of the full privatisation of public services, shared assets and, the ultimate prize, human existence. Doesn't matter whether you live in the USA, UK, EU, Australia or NZ. Wake up. Get upset. You are being subjugated, disenfranchised, dispossessed. Sold out.

  • Comment number 53.

    I do not know where to post this but I was hoping against hope that it could reach some educated ears. Why are we discussing fees for university students?
    Pay when you earn more than 21,000 pounds. These kids will have this hanging over them for years, and what for - accountants.
    Make university education free for those that deserve it - my generation who built this country and 25 more( I am a very very well educated expat) despise this idea of accountants running the country.
    My kids, one of whom has studied for a masters at an English university at a cost to me of 25,000 pounds cash, mean more to me than the cash hungry beaurocrats that run our education system.
    Yours not too sincerely,
    Electronic Turkey.
    Otherwise,
    Dr. Alan Hirst
    Nottingham University, England, Centre of Universe.
    Wheatoes Captain, 1976.

  • Comment number 54.

    OK Robert,
    Can I as a very well educated person get a reply.

    What if our university system returned to the 70's who loses??????

    We (my) generation drove us there.

    I do deserve an answer I believe,

    Alan

  • Comment number 55.

    Don't sell me out

  • Comment number 56.

    I give up

  • Comment number 57.

    Alan

  • Comment number 58.

    A

  • Comment number 59.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 60.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 61.

    OK, reply please Robert...............

  • Comment number 62.

    Firstly I do feel McKinsey have a vested interest in the comments they have made. We should encourage business of any size to invest in Britain and create IP, R&D then manufacture here as we should encourage business from within to do the same. Comments elsewhere about the next Unilever or JCB etc are completely valid the only sectors I would not give tax breaks to would be Banking, Legal, Advisors, PR as they are more inclined to sell off as much as possible to increase their own fees to the detriment of the rest of the UK (frankly they create nothing).

  • Comment number 63.

    To follow-up on point 36. jah_econ point 2 is completely right we can never compete with Germany the only really large UK takover was Vodafone purchasing Mannesman and that created such a stink in Germany that golden handcuffs became even more tight. Whereas our former government and this government will sell anything to anyone regardless of the long term implications to Britain so their banker friends are kept happy. This put Britain in the position as seen with BP that if anything happens to the top ten companies dividends our pensions & tax receipts really suffer. Sadly Britain has learned nothing over the last twenty five years the banks and the politicians still have the rest of us firmly by the throat.

  • Comment number 64.

    41. At 14:11pm on 30 Nov 2010, PacketRat wrote:

    Aye.

    Now did this report have a ghost writer - the same guys that produced the documents about WMDs.......or was it one of those guys on that yacht Boy George was on holiday with......?

    Just asking...


  • Comment number 65.

    « 40. At 14:07pm on 30 Nov 2010, John_from_Hendon wrote:
    Fair way to tax multinationals?

    Total worldwide income in every country they operate. If this is not done then they will simply use transfer pricing to manipulate their profits to avoid taxation- anywhere!

    Each country in which the multinational company operates then gets together with every other country in which they operate and shares out the tax take!


    Jeebers.... sounds like an argument not just for the Nanny-State but for the Nanny of all States. The 'free' marketeers won't like that much, bless them.

  • Comment number 66.

    7. At 11:49am on 30 Nov 2010, virtualsilverlady wrote:
    There is not a lot of choice really.

    If we tax these large multinationals too much they go elsewhere and unemployment stays high here or we accept that we need the jobs and the tax will come from those who are employed.

    Looks like we can't have it both ways.

    Large multinationals can create new jobs quickly but there is certainly a case for helping those businesses who can create and expand home demand and lesson the need for so many of our goods to be imported

    I'm confused by this post. You start off saying that there is 'not a lot of choice' and we 'can't have it both ways' and then propose an alternative. Are you saying that it is just too scary to confront the multi-nationals? No pain-no-gain i'm afraid and the fact is if nothing is done(or even attempted) then everything will just remain the same.

  • Comment number 67.

    It is unfortunate that most of the posts on this site do not address the question posed ............... the Real issue and THE ONLY ISSUE is..............Multi Nationals employ Intelligent people from ALL walks of life........... INTERNATIONALLY............ to advise them on WHAT IS BEST PRACTICE....having paid them handsomely for that advice Multi Nationals Act accordindly!! with a perceived duty of care having been delivered................
    There Is NO issue.........Nighty NightZZZZZZZZZZZZZZZZ

  • Comment number 68.

    The problem includes FTSE 100 companies too who use every ruse to avoid UK taxes.

    HMRC needs to look at tax take in market sectors and explore why and how differences occur. Any anomally in a sector should be investigated and explained.

    HMRC should publish tax paid as a percentage of turnover so people can see the companies that do not play fair.

  • Comment number 69.

    Now is the time for people to stop supporting the multinationals where possible. I understand that there is not always an alternative but where you have a choice then make the right choice. Fractional ownership means that control is removed from owners and placed in the hands of senior and executive managers. The model of talent rising to the top is false because it's actually the amoral who rise to the top of multinationals. Where possible, people should choose to buy from directly owned SMEs. Although production is obfuscated by companies, ownership is not. Research the companies that you buy from and make an informed ethical choice.

    If you want to invest your savings then find an SME that wants to borrow and invest directly. Don't gamble in the financial system. People need to start making more ethical choices and move away from decisions that are based purely on profit.

 

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