When he was appointed Chancellor of the Exchequer in 2010, George Osborne said that the Conservative-led coalition Government would carry out “unashamedly pro-business” policies.
Six years later, has the UK business environment improved?
In the area of taxation, the most visible outcome of Osborne’s pro-business stance has been the slashing of corporation tax from 28% in 2010, to 20% by 2015, with the rate set to fall to 17% by April 2020. This will give the UK one of the most competitive corporate tax rates in the G20.
It is a strategy that appears to have paid off. While many multinationals voted with their feet and deserted Britain amid the fiscal uncertainty of the previous Labour administration’s final years, this trend appears to have been reversed under the Conservatives and confidence has returned.
Indeed, a recent survey by professional services firm KPMG found that the UK is now one of the most attractive locations in the world to do business, largely because of the tax policies introduced since 2010. According to the firm, the UK “is now seen as much more competitive than its European peers generally viewed as having attractive tax regimes."
Other indicators of national competitiveness also rate the UK highly for its tax and regulatory system. PwC’s Paying Taxes Index 2016 ranks the UK 15th out of 189 jurisdictions in terms of ease of paying business taxes, while the country is ranked a very creditable 6th place in the World Bank’s Doing Business Index, ahead of the United States (7th), Germany (15th), Ireland (17th), and France (27th).
An Uncertain Future?
Yet, for all the Government’s good work in the area of tax, it may be the case that Britain’s hard-won advantages are, ironically, being undermined by a Chancellor who likes to tinker with the UK tax system.
For example, each budget seems to introduce property tax changes and Osborne has introduced swathes of new anti-avoidance laws, some of which have been criticized as overbearing.
What’s more HM Revenue and Customs has become increasingly aggressive in its pursuit of unpaid tax, and raised almost GBP500m in additional tax from SMEs through tax enquires in 2014/15 alone, according to accountancy group UHY Hacker Young. One wonders how many innocent parties who lack the means to fight tax investigations are getting caught in HMRC’s dragnet?
The UK is also an enthusiastic supporter of the OECD’s base erosion and profit shifting (BEPS) work, and has been criticized for introducing BEPS-related measures without sufficient consideration of the consequences, such as the much-maligned diverted profits tax.
All of which add to an already complex and confusing body of tax legislation. And there are lessons to be learned here. KPMG’s survey identified "stability" as the key factor for companies when considering the attractiveness of a country's tax regime. Tax rates trailed in fourth, behind notification of change in second and simplicity in third.
Considering The Brexit
However, the major cloud of uncertainty hanging over the UK’s business environment has to be the upcoming referendum on its future membership of the European Union, with the “remain” campaign having issued many dire warnings about the economic consequences of a “Brexit.”
Having dubbed the “in” campaign “Project Fear,” supporters of a Brexit counter that Britain’s economy would boom were it freed from stifling EU regulation.
At present, it’s impossible to say who’s right. Either way, 23 June 2016 is shaping up to be one of the most important days in Britain’s long history.