Business leaders believe the UK's corporate tax regime is worse than it was five years ago and think the Government should cut business taxes and simplify the system to halt the country's declining international competitiveness, a new survey from the CBI shows today (Monday).
Seven in ten business leaders believe the UK is a poorer international business location than in 2001, and three-quarters say the corporate tax regime is worse. Almost all are concerned with the increased complexity of the tax system, and the demands of compliance, as well as the rate of corporate tax compared internationally.
For the survey, Ipsos MORI interviewed senior executives from FTSE 350 companies and their equivalents from foreign-owned companies. Two-thirds of respondents (typically chairmen, chief executives and board directors) were dissatisfied with the Government's overall approach to tax and international competitiveness, and 77 per cent said it does not adequately consider the latter when making tax changes.
Almost all (93%) believe the Government does not give sufficient thought to the compliance burden and 73 per cent think it does not understand how - increasingly - tax features in corporate decision-making. One in four respondents think the UK business tax system is worse than other EU states with only 17 per cent preferring it. Interestingly, the USA is not, on balance, deemed as good as the UK.
In its Pre-Budget Report submission the employers' organisation is urging the Government to help restore some lost competitiveness by starting a programme of straightforward reductions in the tax burden on business, and by simplifying the legislation and regulation which governs it.
Richard Lambert, CBI Director-General, said: "In today's world of global markets, companies have many more choices to make about where to invest their capital and their talent than they did in the past. Business tax is one of the most important considerations that firms have to take into account, and it is easily measured.
"Our survey shows that business leaders believe the UK's corporate tax regime is more burdensome than it was five years ago, and that this is making the UK less attractive as an international business location.
"The worry is that on current trends our position relative to other developed economies will deteriorate further over the next two or three years. A couple of companies have already relocated to more friendly regimes, others have publicly said they've considered it, and more are refusing to rule it out.
"No one expects a dramatic overnight shift - rolling back the tax burden, like turning an oil tanker, will take time. However, business needs a clear signal that the UK is going to shift course, first by checking the trend to a more burdensome business tax regime, and then by moving back up the competitiveness league tables.
Mr Lambert added: "It is important to be absolutely clear about who pays for high business taxes. They fall on consumers, in the form of the higher prices that companies need to pay their increased costs. They fall on shareholders, large numbers of whom represent the interests of pensioners and savers. And they fall on the workforce, in the form of fewer jobs, squeezed wages, and lower business investment. High business taxes are not a way of making 'fat cats' squeal. They are a burden carried by the whole of society."
The CBI survey has highlighted three key areas of concern to business: the complexity of the corporate tax regime; the cost and burden of complying with the demands of the newly-created HMRC; and the rate of corporation tax which has slipped from 10th best in the OECD in 2000 to 18th in 2005.
Reflecting this, some companies have already relocated their headquarters to other, less tax-onerous EU states such as Ireland and the Netherlands. In our survey, these were regarded as the most tax favourable locations, with 37 per cent of respondents mentioning the former and 24 per cent the latter.
To arrest the UK's slide, 71 per cent of business leaders say the corporation tax rate should be reduced, 85 per cent want the cost and burden of compliance cut and 95 per cent of business people say the tax system should be simplified.
In addition to lowering corporate taxes, the CBI argues in its PBR submission for some specific low-cost measures to lift competitiveness, such as improving take-up of the R&D tax credit. Equally, the Government should raise its game on delivering the savings identified by Sir Peter Gershon's review of public sector efficiency.
Other highlights from the survey include:
- A fifth of firms (22%) have relocated some activities overseas, with financial back office services the most common. Another 30 per cent are considering doing so. Although none had so far done so, 19 per cent would consider moving their HQ.
- Indicating the lack of certainty in the tax regime at the moment, a quarter of business people (23%) said the way their companies' tax returns have been treated has declined since the creation of HMRC.
- Nine out of ten companies (91%) believe the desire to raise revenue is a significant motivator for the Government to make changes to the tax system. The other nine per cent say it is a minor motivator.
- Six out ten business people (60%) say tax plays more of a role in commercial decision making than five years ago, with 21 per cent saying it is significantly more important. Only one per cent of respondents said it is less influential.