Designing a responsible corporate tax policy for Brexit Britain

02 Feb 2017, by Caroline Macfarland Guest in Economics

Last month, the Prime Minister announced the government’s new industrial strategy through a green paper, inviting responses via a consultation. In a 132-page document, tax was mentioned just 14 times. Yet it is undoubtedly the case that taxation is a core component of a government’s economy policy. And given we now know the UK will leave the single market, this will mean that the government will have greater scope to change our tax structures.

Seeing corporate tax cuts as a silver bullet to competitiveness is not a “solution” to establishing Britain’s place in the world outside of the EU. Instead, there are deeper questions to be asked around the meaning of competitiveness. The government’s green paper noted “pro-competition rules, flexible labour markets, less intrusive regulation and a favourable taxation regime” all as factors for making the UK a good place to do business. But a competitive economy is as much about stability, certainty and a process that everyone can buy into. An economy that makes Britain a favourable place for multinational businesses to locate and smaller businesses to thrive – not just because of the tax regime but thanks to well-resourced public services, high living standards and a quality education system, all of which affect the employees of those businesses. What Brexit will mean for long-term productivity, a balanced workforce, and living standards in the UK needs to be taken into consideration. How should tax policy adapt to these longer term changes? These are questions that clearly unite a range of different stakeholders across business and civil society, many of whom heavily contest using tax as a “political football” to attract certain voting demographics at the expense of others in society.

Cutting taxes, through reduced rates, tax reliefs or incentives can affect competitiveness – e.g. the likelihood of businesses to see the UK as a good place in which to locate and invest – in many instances. But the picture is more complex than “if we had lower taxes and less red tape, then the UK’s economy would automatically prosper,” which the level to which the conversation in the press and amongst some politicians often is reduced.

It is vital to have firm principles in place for what changes to the tax structures in the UK are based on, and what they aim to achieve. Public understanding of these principles is as important as the stability provided to businesses. Furthermore, scrutiny of political decisions is key particularly when many people are still feeling bruised by a divisive Brexit vote. Although welfare expenditure and benefits are heavily scrutinised by Parliament and the media, civil society groups and the public lack insight into the rationale for, and purpose of, the £100 billion that goes each year into tax reliefs.

It’s in this context that we are commencing a new workstream from Common Vision’s Responsible Tax Lab to take a “first principles” approach to tax policy. In partnership with the TUC, Designing a responsible tax policy for Brexit Britain will convene technical tax specialists, economists and policy experts to set the stage for the questions which will need to be asked during the Brexit process. When are tax reliefs, incentives and “deals” legitimate in addressing an economic imperative, and what factors contribute to how they are used responsibly? What principles will underpin tax policy making in relation to a post-Brexit industrial strategy which achieves balanced growth and jobs in the UK? And what does constructive tax policy making look like that serves the interests of all in society, and who needs to have a stake in the process? These are some of the questions that we will be asking in the coming months. For further details and to contribute your thoughts on some of these issues, contact [email protected]