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Labour tax proposals divide business

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26th Sep 2013
Freelance journalist
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Proposals by Ed Miliband to increase corporation tax and cut business rates for small business if the Labour party wins the next election have received a mixed reaction from tax advisers and business groups.

During his speech at Labour’s party conference in Brighton this week Miliband promised to reverse a planned cut in corporation tax from 21% to 20%, due to take effect in April 2015, and offer an £800m business rates tax break to smaller companies.

CT receipts and cuts

Corporation tax receipts fell to £28.1bn in 2003-04 before rising sharply in the following years to reach a maximum of £46.4bn in 2007-08.

The global financial crisis in 2008 and resulting economic downturn led to another fall in receipts (to £35.8 billion in 2009-10), but receipts increased again in 2010-11.

In 2008 the main corporation-tax rate was reduced from 30% to 28%. The  small companies’ rate was raised from 20 % to 21%.

In 2011 the rate was reduced to 26%. The small profits rate (formerly known as small companies’ rate) was reduced to 20%.

In 2012, the rate was reduced to 24 per cent and again to 23% in 2013.

From April 2014, the main rate will reduce to 21% and to 20% in April 2015.

Source: HMRC.

Chris Sanger, head of tax policy at Ernst & Young, said the announcement on corporation tax was a departure from the recent “orthodoxy” of tax policy.

“In choosing to depart from reductions in corporation tax rate, in favour of cuts in business rates, the Labour Party is seeking to address the increasing importance, particularly for smaller businesses, of business rates which has risen to more than 4% of total taxes.”

Increasing receipts from business rates have come close to making up for declining money from corporation tax, Sanger said.

By 2017 corporation tax is due to account for 5.75% of all taxes.

The coalition government and previous Labour government have said cuts in corporation tax are a sign that Britain is a good place to do business.

“Investors seeing this change now may well be concerned as to whether this represents a fundamental change in policy or a slight shift in priorities,” Sanger said.  

John Cridland, director-general of the CBI, which represents more than 240,000 companies of all sizes, said: "Businesses will view the proposals on tax ... as a setback for Labour's pro-enterprise credentials ... "The proposal to reduce business rates has merit, but to do it for some firms, through an increase in corporation tax for others, is divisive.

Small businesses rely on large businesses which employ ten million people, Cridland said who urged Labour to “speak for all businesses.”

Simon Walker, director general of the Institute of Directors said Labour’s tax policies were “better politics” than economics, and created a “false distinction” between small and larger businesses.

Patrick Stevens, a former president of the Chartered Institute of Taxation, said that corporation tax was unlikely to go down any further than 20%.

Increasing it slightly would not make much difference to HMRC’s tax receipts or companies’ tax bill, but it may mean a Labour is perceived as less “friendly” to big business, he said.

Small Business Support

Perhaps unsurprisingly, small business groups were pleased with the cut in business rates but said Labour should also try to make the tax system simpler.

The Federation of Small Businesses said that seven per cent of small businesses pay more in rates than rents.

Business rates have been partly blamed for empty shops on UK high streets.

In the UK's top 500 towns 18 stores a day closed in the first half of 2013, just two fewer a day than in the same period last year, according to figures released by accountancy firm PwC and the Local Data Company.

A rate cut may help some struggling businesses keep trading but underlying problems with the way rates are calculated (based on the RPI measure of inflation rather than CPI, which is generally lower) can still cause hassle for business, according to, James Moore, the deputy business editor of the Independent.

AccountingWEB members were also sceptical in their initial reactions to Labour's proposal. Shoshana viewed the announcement as “political tosh as usual” and wondered  when tax policy would cease being a political tool and be used as an economic tool instead.

Jon Griffey and others also questioned whether the focus on business rates really addressed the pressures facing many businesses, particularly small retailers. "A cut/freeze in business rates would no doubt be welcomed by the recipients but it is not suddenly going to revive the High Street.  We increasingly buy everything online these days so the resulting squeeze on margins and volumes makes many shops unviable.  Short of uninventing the Internet it is difficult to know what to do."

Replies (9)

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By Ian McTernan CTA
27th Sep 2013 13:27

Sound bite Tax policies

More sound bite tax policies from the party that almost ruined the country and left us in enormous debt.

It's perceived that an attack on 'big business' will win them votes, so they can point out to their supporters that they are being 'tough on big businesses' while offering 'help for the little guy'.

The fact is that for many small businesses rates and rent are what kills them off.  Slowing down the growth in the cost of rates isn't really going to help much, but makes for a good sound bite.

Businesses have for many years been bled dry by the Treasury who see them as an easy target, hence the huge amounts raised by business rates (for no benefit of the company at all).

If business rates were applied to domestic properties there would be a revolution in short order.

Governments of all persuasions need to stop strangling small businesses with endless regulations and huge tax bills- but then wealth creators are continuously attacked by the politics of envy (Labour supporters, usually in safe gold plated pensionable jobs)so we shouldn't really be surprised.

Maybe we should send out MP's of all political parties on 3 month secondments during the summer parliamentary recess to real small businesses so they can feel the effect of their policies first hand and see the problems businesses face every day.

As for high streets, they have been priced out of the market by excessive rates, employers NIC and a myriad of other costs.

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By Roland St Clere-Smithe
27th Sep 2013 14:28

Wrong...

Labour tried to make things better for the less well off in our country.

They made many errors including Iraq and reducing civil liberties .

Nevertheless unlike Flashman who cares not a jot for the many people who are struggling to meet their bills Labour at least is trying to address these and other problems.  

 

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Replying to stepurhan:
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By The Black Knight
27th Sep 2013 15:56

How did that work

Roland St Clere-Smithe wrote:

Labour tried to make things better for the less well off in our country.

They made many errors including Iraq and reducing civil liberties .

Nevertheless unlike Flashman who cares not a jot for the many people who are struggling to meet their bills Labour at least is trying to address these and other problems.  

 

Bankrupting the country is hardly helping the less well off.

Unfortunately the small business workers/owners work harder have more risk, pay more tax and earn less after having to pay for the freeloaders that are on a fantastic benefits and tax package for sitting at home so long as they breed lots.

I am concerned that the floating voters will be bribed by this policy (which I think is a good idea and will benefit small business) to tip the balance and give Labour a second chance at bankrupting the UK. I am sure they will finish the job this time.

Unfortunately we are left voting for the lesser idiot in some Freudian disaster avoidance strategy instead of voting for something useful and productive that might benefit all sectors of society.

Who would vote for any one of them if you had a choice? that Ed Balls is just unbelievable and is only there to make Cameron look normal.

 

Actually I can't think of anything good that Labour did do! We would be better off with anarchy or at least a no change government! I would vote for repeal of everything they did.

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By Roland St Clere-Smithe
27th Sep 2013 15:58

Was that the fault of the labour governmemt

Or we we all the victims of one of the greatest heists in history perpetrated by bankers, energy companies, privatised rail companies and the rest....

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By The Black Knight
27th Sep 2013 16:25

Government

The clue is in the Job title.

The disaster is all Labour's fault, Not the greedy bankers not the rich people, not the child tax credits factory.

They over taxed and regulated the legitimate to the point of strangulation.Didn't police the errant and encouraged tax and other financial fraud by refusing to admit it existed and designing systems that could be taken advantage of. Then overspent and borrowed to cover up their incompetence. Bought their votes by overpaying government workers and non workers. Teemed and laded, over inflated the economic figures then blamed it on the Bankers (the biggest earners for UK PLC) and anyone else they could think of.

You are right it does look like a massive fraud.

Did they learn these commercial practices from Enron or Leeson I wonder.

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By justsotax
27th Sep 2013 17:06

The Black Knight

you seem under the impression that those who servie us as MP's are doing it for the good of the country....whilst you may well be right that Labour are the sole cause of all that is bad in the world...i would warn you against thinking that the tories, libdems or any other political party have got your best interests at heart....(well unless you are a banker...GO is fitghing there corner...and too right....why should they be affected by the events in the real world....they deserve the money - they are the one single beacon of light in our economy....yeah right...)  

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Replying to andy.partridge:
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By The Black Knight
27th Sep 2013 17:29

Certainly not

justsotax wrote:

you seem under the impression that those who servie us as MP's are doing it for the good of the country....whilst you may well be right that Labour are the sole cause of all that is bad in the world...i would warn you against thinking that the tories, libdems or any other political party have got your best interests at heart....(well unless you are a banker...GO is fitghing there corner...and too right....why should they be affected by the events in the real world....they deserve the money - they are the one single beacon of light in our economy....yeah right...)  

Certainly not! I am under the impression that MP's OUGHT to be acting in the best interests of the country and it's subjects.

The thought is a little advanced for this century I admit.

I have no love of Bankers either but blaming them for the economic crisis is akin to blaming the bull for wrecking the china when you took him in the shop.

A world wide recession (well at least in the countries that had the same policies) is akin to saying "well he did it miss"

It is about time these idiots took some responsibility for their own actions.

Would you leave your wallet with a known thief when he can't see what he did wrong the last time he borrowed without your consent.

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By vstrad
30th Sep 2013 16:27

Giving with one hand ...

Yes, lets help small businesses to grow, right up until they become large businesses, at which point we will regard them as the enemy, increase their taxes and publicly insult them (Amazon, Starbucks, Google, etc.) for their effrontery in creating jobs and prosperity.

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By johnjenkins
01st Oct 2013 11:29

Whatever

Labour or Conservatives say it won't make any difference to the outcome of the next GE. Most people, these days are used to politicians crap. It will be an all party coalition.The electorate are frightened of voting in one of the big parties with a large majority as both Tory and Labour rule ended in a farce. What Ed should have said was "we will abolish business rates for the first 3 years of a business life and keep the corp tax cut". 

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