Missing Tax Link in Labour Policy to Attract Business

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Byline: ANTHONY HILTON

IN THE first budget after Margaret Thatcher's general election victory in 1979, the Conservatives cut the top rate of income tax from an effective rate of 92% all the way down to 60%. The result in the following years was that income-tax receipts increased.

In his end-of-summer report in yesterday's Financial Times, an upbeat Chancellor pointed out how, in the early years under Labour after its 1997 victory, the tax rate on company profits, known as corporation tax, has been cut from 33% to 30%. The yield has once again gone up - but this, unfortunately, is less as a result of the incentive and more due to a much tougher attitude by Revenue & Customs to what used to be considered legitimate tax avoidance by companies.

What was missing from the Chancellor's assessment was any sign that he understands how the corporation tax landscape has changed in the years since Labour came to power - and how his tax cut of yesteryear is no longer enough to keep Britain competitive.

In the early days of the Blair Government, Britain's company tax rate was one of the lowest of any major economy. But not any more.

Analysis by the OECD, the Parisbased research organisation, throws up a raft of countries which offer more favourable treatment, with the result that the UK has slipped rapidly down the league table. Now its corporation tax rate is above the average, and the UK is becoming progressively less attractive for tax reasons as a location for business.

This is not only a problem for those seeking to attract companies to these shores, it is also an issue for those located here whose main competitors are overseas. Perhaps if the Chancellor is not interested in a tax cut to, say, 20%, it is something the Conservatives could pursue - and stick with it even if their focus groups don't like it.

Aer Lingus set for a Buffetting WARREN BUFFETT, the head of the American Berkshire Hathaway company and arguably the world's most successful long-term investor, has a singular view of airlines and aircraft manufacture: along the lines that it would have been much better for investors, in the 100 years since the Wright Brothers first proved powered flight was possible, if someone had shot them down.

He wished the Wrights personally no harm. He was reflecting on the fact that airlines and aircraft manufacturing are far more likely to lose shareholders money than to make it.

Investors would be well advised to heed this warning before getting excited by the news that Irish stateowned airline Aer Lingus is to get its shares listed in London and Dublin. This is a remarkable turnaround, the business having been virtually bust only a few years ago, and the management deserves every credit for getting it to this point.

It has an interesting business model in combining full-service long-haul flights across the Atlantic with a competitive low-cost short-haul business on European routes. Right now both are going well and could probably be expanded. But those positive aspects operate under a black shadow that airlines share with insurance. It is a sad fact in both that the idiots in the industry are never allowed to go bust, or certainly not allowed to fail fast enough. …