Terry Scuoler, chief executive of EEF sets out the manufacturing sector’s stall in the tax avoidance debate and urges government not to forget the need for growth when contemplating action.
We must recognise that there are areas of the corporate and international tax system that need urgent attention. Out-of-date rules governing international transactions seem poorly suited to global, internet-based commerce and high value digital networks.
While much of the reform needed does not obviously target manufacturing companies, the tone of the debate around tax avoidance, the solutions being proposed and the absence of a clear public position from the government are cause for concern.
Possible collateral damage on investment and trade intensive sectors such as ours could not come at a worse time. Manufacturing investment was still 19% below its prerecession peak in 2012 q4.
Tax policies are under the direct control of government and it can use this power positively – as demonstrated in repeated cuts to the headline rate of corporation tax.
Other tax cuts to encourage international investment have also been signalled and this is critical for our sector. 46% of investment in UK manufacturing came from foreign-owned companies in 2010 – over twice as much as in Germany and Italy, and well ahead of Spain and France. In 2011 investment by foreignowned manufacturing companies exceeded that from UK-owned companies, totalling £8.8 billion.
The plethora of possible responses to the issue of tax avoidance currently being aired – though not generally by the government – are undermining the Coalition’s broader tax reforms and impacting on confidence.
Proposals such as trying to set kitemarks on a ‘fair share’ of tax, or introducing minimum tax requirements, even for firms rolling forward large losses, are unhelpful.
We offer government two challenges in addressing the tax avoidance debate.
Firstly, the response to concerns about corporate tax avoidance must not undermine government’s expressed objective of delivering the most competitive tax system in the G20.
Secondly, government needs to actively enter the public debate, setting out the areas where consensus shows there is a clear need for reform and ruling out areas that should be excluded.The tax reform process must be structured and include opportunities for business consultation.
Finally however, whatever changes are decided on, they must deliver greater public confidence in the corporate tax system and enhance the image of business.