NHS-tax-350m

COMMENTARY: Restoring corporation tax cuts would generate more than £350m a week for NHS

When I left the BBC 20 years ago to set up a PR consultancy, new technology was a fax machine and politics was dominated by John Major battling backbench Euro-sceptics.

Today, it’s the Europhiles who are on the backbenches and my fax machine has long since gone into the recycling. There are, though, some things about life in business that seem as constant as the payroll.

The one that never goes away is the ritual of denouncing tax and regulation as if we would be in paradise without them.

In 1997, I soon discovered a business breakfast would not be complete without someone railing against ‘red tape’ or announcing – to chuckles of approval - a new way to outwit HMRC.

It’s much the same now with the triggering of Article 50 being seen by some as opening the way to Britain becoming an off-shore tax haven and lighting a fuse to blow EU regulations to smithereens.

But business people should be careful what they wish for.

Freshwater has faced existential threats on only two occasions and both came from too little regulation not too much.

The first was the Great Recession, which was caused by the failure to control a shadow banking network that became so over-leveraged and excessively laden with risk that it ultimately took command economy measures to save the global economy.

The second was the deliberate delay of a six-figure payment by a FTSE100 company as a way of asserting its control over the supply chain, without any immediate mechanism for redress. (We subsequently sued successfully for damages but that was long after the life-threatening squeeze on our cash.)

The deregulation of the banks has now been partially corrected by the Basel III and Dodd-Frank reforms, but the latter is in jeopardy after Donald Trump ordered a review because he has “friends” with “nice businesses” who can’t borrow money.

As for late payment, no government has been willing to grasp the issue, which I suspect is because of the disproportionate political influence of big companies who build late payment into their cash flow management at the expense of SMEs.

This power has also been evident in fiscal policy. Twenty years ago, the standard rate of corporation tax was 31% but small companies with profits of £300,000 or less paid only 21%.

By 2010, the gap had narrowed slightly to 28% and 21%. Then, George Osborne slashed the rate for bigger companies in successive budgets so that it now stands at 20% across the board.

In other words, during my time in business, the tax rate on the profits of bigger companies has come down 35% while for small companies it is only 5% lower.

For the Exchequer, this has meant a steady loss of revenue. As a share of GDP, corporation tax has fallen from 3.5% to 2.5% over the period – a loss to the public purse of nearly £20 billion annually at today’s prices.

I may be a business person by day but I am a husband, father and grandfather 24/7, and I cannot get excited about paying less tax if it means vital public services are starved of cash.

Nor can most people, it seems. A Sky News poll last week found that more than two-thirds of us would back a 1% increase in income tax if the money was dedicated to the NHS.

Stripping out the ‘don’t knows’ and neutrals, there were four times as many supporters of paying more for health as opponents. And backing for the idea was strong regardless of party allegiance, age, region, gender or the way we voted in the referendum.

But money to tackle the NHS crisis doesn’t have to come from income tax, which has consistently been 15.5% of GDP or more over the past 20 years.

Why not return corporation tax to 3.5% instead? The symmetry is almost perfect. At present, we spend 9.8% of GDP on health compared to France’s 11% and Germany’s 11.1%.

If we were to increase corporation tax’s share of GDP by one percentage point, we could add £20 billion to the NHS budget and match the spending of similar economies.

And, funnily enough, £20 billion a year is just over £350 million a week. Sound familiar?

Steve Howell

Steve is chief executive of Freshwater UK. This article first appeared in the Western Mail newspaper.

Steve is also author of Over The Line, a novel telling the story of an Olympic poster girl tainted by the steroid-fuelled death of a friend.  


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