Sunday, November 22, 2015

John McDonnell's one-dimensional view of major businesses

Andrew Marr interviewed the real chancellor and shadow chancellor this morning ahead of the autumn statement.

John McDonnell had an interesting and rather one-dimensional view of the largest businesses operating in Britain which I do not recognise.

He criticised George Osborne for reducing Corporation Tax, saying that this will give millions to big business (it is, of course, being done in a way which takes some smaller businesses out of the net and also reduces tax paid by the slightly smaller ones.)

McDonnell did not identify the businesses he was talking about beyond indicating that they were the largest ones, particularly FT top 100 businesses. He appeared to accept Andrew Marr's characterisation that he was talking about businesses like Amazon and Google: whoever he was talking about, he said that the chancellor's corporation tax cuts were giving those companies millions but they were not investing in the UK.

Now of course, reality is much more complex than this. Some large companies pay a lot of corporation tax: some don't. Some large companies are investing billions in Britain: some are not.

But here's the thing. Those companies which arrange their affairs so as to pay very little tax are not the ones which benefit hugely from cutting tax rates: as they are not paying much in the first place there is not much less to pay. The companies which get to keep much more lots of money from the chancellor's corporation tax changes are the ones which have been paying up.

And funnily enough, like the company I work for which pays hundreds of millions in  tax,  they are also often the ones who are spending billions investing in Britain - in BT's case for instance, expanding high speed broadband.

Not everything which big businesses do is right: not everything they do is wrong either. A one-dimensional view of the matter is not how to run a successful global economy.


Jim said...

Labour do seem to have a real problem with this whole concept don't they. You don't "help" a company who does not pay UK taxes in the first place by cutting UK taxes. That much is pretty obvious.

The real point of course is by cutting UK taxes what you are in fact doing is helping those companys who do pay corperation tax in the UK (like the smaller businesses) whist at the same time reducing the incentive for others to pay taxes overseas and instead pay them here, as the admin and accountant burden is reduced. In other words, By reducing UK Cooperation tax, you actually increase the amount of revenue collected across the economy on the whole.

The Laffer curve strikes again.

Chris Whiteside said...

Pretty obvious to me, Jim, and to you, but apparently not to the person who would be running the economy if by any horrible chance Labour were to win an election with the present leadership team in place.

Can't see that happening unless the Conservatives screw up incredibly badly, but I don't think it's healthy for democracy that people have such a poor choice if they don't like the present government.

Jim said...

For what its worth, I don't like it either.