What's a fair contribution from multinationals?
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.
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.