Margaret Thatcher once famously remarked that we had not rolled back the frontiers of the state in Britain only to see them re-imposed by Brussels.
Her impatience with our nation ceding power to the European Union came to be shared by a majority of voters. Brexit was the result, overseen by this parliament, with Conservative MPs making a promise to ensure the UK would “take back control”.
How ironic, then, that the Treasury has been hard at work on a plan to re-surrender control. Only this time, they want to race ahead and cede power to an initiative emanating from the Organisation for Economic Cooperation and Development (OECD), a 38-member Paris-based organisation with far longer tentacles than the EU.
For years, the OECD has worked at plans for an international minimum rate of corporation tax, arguing such a measure would prevent a supposed “race to the bottom” among countries trying to encourage investment.
Fifteen months ago, the OECD succeeded. Britain was among the 135 countries signing up for a world minimum corporation tax of 15 per cent for large multinationals – even though the OECD was silent as to how on earth this scheme would be policed and enforced. What happens if a country like China “games” the system?
In spite of the OECD’s failure to answer key questions about how its new 15 per cent worldwide minimum corporation tax will operate, the 2021 agreement rang few alarm bells.
Many took the view that the measure was of little significance for the UK, given our corporation tax level stands at 19 per cent, with the rate due to increase to 25 per cent this year, while others boasted that was a way to raise tax revenues to support recovery from the Covid pandemic.
But now the penny is dropping as more people study the detail. The deal this Treasury has signed up to will constrain future governments, just as surely as ceding power to the EU used to constrain British sovereignty before Brexit. We are now on a slippery slope to losing control over our taxation policies. Our economic freedoms are once again at risk and our Conservative mission to transform Britain into a global beacon for free enterprise faces a new challenge.
One facet being raised among Parliamentary colleagues on the Conservative benches is the fact that the OECD regime demands an “effective” minimum tax rate of 15 per cent on larger firms trading across borders. That means any country which sets corporation tax at the new 15 per cent minimum will have to restrict tax incentives for big companies.
‘Kiss goodbye to clever initiatives’
Imagine that in future a reforming British government cuts corporate taxes to the new agreed minimum of 15 per cent to get the economy moving. That government would then find it has to limit or even kiss goodbye to clever investment-boosting British initiatives such as “investment zones”, the “patent box” and the super-deduction for capital investment. Our flagship policies to establish freeports and enterprise zones to create jobs, growth and attract investment also face being constrained by this agreement.
Yet these and similar initiatives are crucial to any attempt at levelling up Britain. The Adam Smith Institute warned last week that the OECD minimum tax threatens that ambition – so much so that the respected free market think tank titled its report on the matter “Levelling Down.”
Many of my Conservative Parliamentary colleagues share similar concerns. They are coming to suspect the Treasury has been working to a simple but effective plan: smother debate about the new minimum tax, then get it smuggled through the Commons.
How does that work? Firstly, by failing to be fully transparent. Where, for example, is the impact assessment? What work has been done on compliance costs for the companies affected?
Secondly, the Treasury has admitted it plans to put the minimum tax measure into the Finance Bill after the March budget. That means a take-it or leave-it vote: back the budget as a whole or reject it and land your government in crisis.
In the House of Commons, those now turning their attention all this are beginning to bridle. All the more so as we hear the news from abroad.
An EU directive will implement the OECD minimum tax across member states – but will give an opt-out to those who don’t have very many large multinationals. This diverges from the OECD agreement, yet the OECD and everyone else in power buries their heads in the sand.
Similarly, Joe Biden’s America has legislated for a minimum corporation tax – but the details of the new US law differ widely from the OECD agreement. So widely, in fact, that tax accountants fear a mess, fear that companies will end up being taxed twice by accident – and have their concerns again ignored by people overseeing this globalist initiative.
No justification
There is no justification as to why the Treasury wants this measure rushed through with little understanding of the wider consequences or even assessing how the EU may further diverge from the OECD. Ministers claim this could raise £2bn a year for Britain, but there are no detailed workings shown, only naïve assumptions, opaque decision making by the Treasury and Government; we risk significant levels of capital flight away from our country if the Treasury gets its way.
As leading UK think tanks and others have warned, the UK is more likely to see revenues from the measure amount to zero, as low-tax jurisdictions jack-up rates, meaning higher prices worldwide.
It is time for those who care about sovereignty, our economic freedoms and the economic health of this country to wake up to this threat – and time for the Treasury to slow down, re-examine and start answering key questions.
