AHEAD of this week’s Comprehensive Spending Review, the City of London has published a report looking into the predictability and competitiveness of the UK tax regime and how this impacts upon the financial services industry. The City understands and fully supports the government’s commitment to cutting the fiscal deficit. However, whilst increasing taxes and cutting spending will raise vital funds in the short-term, such measures do not provide long term answers.
The only way to generate a strong, sustainable and diverse economic recovery is to ensure UK plc is globally competitive and to provide the requisite support for our leading industries.
This report – produced on behalf of the International Regulatory Strategy Group (an organisation that helps shape international regulation, led by the City of London in partnership with TheCityUK) – shows that the uncertainty of interpretation and the unpredictability of the UK tax regime is having a significant impact on perceptions of those who make the decisions as to where to base new, or expand existing, operations.
We have reached a tipping point. Some financial firms have already left, citing recent tax increases as the overwhelming factor in their decision. Many others are simply planning to put their best people, those generating the business, elsewhere.
Although the scale of overall tax burden is obviously a key consideration, the top priority must be to restore the perception of predictability and certainty that has for so long underpinned the UK tax regime.
After all, there are many centres with lower taxes than Switzerland. There are however few places with a more predictable tax regime; and here-in lies the major attraction.
The government has said it wants to put in place a competitive tax regime – we all support that aim. But we must also create a perception that the UK wants business to be based here and to flourish here. We need a change in the political rhetoric from one of a negative attitude to high earning individuals to a focus on the wealth created and the taxes paid to our Treasury.
If we are to achieve our shared objectives of delivering fiscal balance whilst also helping to create new jobs across the country we need a joined up approach that sends out the right message to those who would like to invest in the UK but are deterred by the unpredictability of the tax and regulatory regime. The government has sent a positive message with regards to Corporation tax we also need similar messaging on other aspects of our tax regime.
Of course given the fiscal background nobody expects immediate action but setting out a direction of travel and providing guarantees on predictability will certainly help our competitive offering with regards to international firms as well as UK-based firms based who are growing their international business.
Stuart Fraser is Policy Chairman at the City of London Corporation.