Keeping Britain's tax regime competitive

WPP, the British media group, is considering moving its tax domicile to the Republic of Ireland, which has a much friendlier corporate tax regime. Sir Martin Sorrell, WPP’s founder and chief executive, said that the move could cut the group’s £200 million tax bill by tens of millions of pounds a year.

In an attempt to prevent more of this kind of thing, the Chancellor, Alistair Darling, has announced the creation of a task force, with executives from the private sector, aimed at keeping the UK’s corporate tax regime competitive.

The move comes after the introduction of tax measures that, critics claimed, detracted from London’s place as the pre-eminent location for business. Darling said that the working group would have a remit to ensure that competitiveness remained at the heart of any future reforms to the tax system.

“I am determined that we do what is necessary to remain one of the world’s best places to do business, and, critically, to ensure that we maintain our strong and resilient economy and our position as the world’s leading financial centre,” he said at a conference at Chatham House in London.

This is another problem which can only get worse. By creative accounting, multi-national companies can easily shift their profits and losses around from one country to another to minimise their tax liabilities. But there is no need for companies as such to be taxed at all, any more than it is necessary to tax individuals as such. Allow companies and individuals to operate tax-free and levy the tax on land holdings, with payment of the tax being a condition of the right to the holding of land title. Compliance is then easily ensured, whilst companies and individuals are free to get on with their business once the land tax has been paid. It could all be very simple. The government would get more than enough revenue, and Britain would be an attractive place to do business. Any other countries that decided to follow suit would enjoy the same advantages, and in this way, tax competition would give governments the incentive to eradicate rotten and outmoded tax systems.

This would tackle the problem at its roots. But it is not going to happen.