As a UK-based bootstrapped start-up, figuring out how to manage or own taxes most efficiently, we thought it would be an interesting opportunity to meet the people making tax policy in the UK. Last night we joined a surprisingly lively discussion on corporate taxation, a dry topic to some but important for any of our MBA readers with aspirations to run their own business empires one day!
The debate, "Cutting tax - and costs - to business. Is there a magic formula for growth?" was organised by Politeia, a socio-economic think-tank and the Tax Payer's Alliance, advocates of 'honest' taxation.
The panel was comprised of David Gauke MP, exchequer secretary to the UK Treasury, Dr Ludger Schuknecht, a distinguished German economist and Allister Heath, the razor-sharp editor of newspaper CityAM.
First up, Treasury minister, David Gauke, summed up the current Conservative Government's ambitions for tax simplification in the UK (including setting up an aptly named 'Office of Tax Simplification').
Amongst his Government's achievements, Mr Gauke listed the corporation tax cut (from 29% to 23% in 2013, and to 21% in 2014), the patent box to incentivise R&D and the cut in top rate of income tax from 50 to 45%.
A KPMG 2012 report declared the UK as Europe's most competitive tax regime ahead of the Netherlands and Ireland - a helpful boost to Tory policy! But Mr Gauke would like to go further and make the UK the most tax effective system in the G20.
Mr Gauke reflected on the Thatcher leadership, which achieved a £1bn annual reduction in corporate tax burden and pointed out that British Chancellor, George Osborne, is gunning towards a £7bn such tax reduction.
Allister Heath, editor of London's free financial paper CityAM (a staple diet for many morning commuters!) was more skeptical of government tax measures. On the positive side, Mr Heath supports the recent corporate tax reductions, changes to corporate tax law, increased personal income allowance and entrepreneur's relief. However, he feels some actions have stifled growth: increasing capital gains tax and stamp duty; dragging more people in to the 40% income tax bracket and more North Sea Oil taxes.
Tax hikes to reduce the national debt have been front loaded and Mr Heath believes this is holding back UK growth. He advocates "radical action and a long term vision", including a dramatic corporate tax cut from 21% right down to 11%, below the Irish level of 12.5%. Combined with an abolition of capital gains tax, Mr Heath thinks this type of "shock and awe" tactic would transform UK competitiveness at a time when we're dealing with falling real growth and a credit down-grade.
Last up, Dr Ludger Schuknecht, head of fiscal policy at the European Central Bank, advocated that the number one way to come out of crisis is to get public finances under control, specifically by cutting spending. Dr Schuknecht believes in improving incentives for workers and for the financial sector to provide loans to productive areas of the economy. He thinks a tax:GDP ratio of 35 to 40% is good and the UK is currently at around 40%.
Overall, a great 'big-picture' discussion on corporate taxation and British competitiveness! Many of the issues discussed were more relevant to the world of multinationals, than to start-ups like BusinessBecause. some questions we'd still like to pose to UK policy makers include:
- How do you help start-ups to achieve scale and become meaningful job creators?
- Can the government provide national insurance relief to small firms?
- How to operate a start-up in London with crippling office rents, rates and transport costs and lack of cost-effective, skilled web developers.
- Is the UK cutting off our supply of foreign talent by making it difficult to study and work in the UK (the government's proud of culling net migration - but will this stifle small businesses?)
We look forward to more debates on these issues in the future!
Dr Schuknecht advocating fiscal reform and careful spending
Interested in setting up your own business? Why not check out our editorial series with MBA Entrepreneurs, sharing their tips on all types of busineses ranging from language lessons to luxury fashion!