David Green: When it comes to economic rejuvenation, there’s no alternative to cutting Corporation Tax

9 Feb

David Green is CEO of Civitas.

With a Budget due on 3 March, the Government has been floating the idea of a windfall tax on ‘excess profits’ made during the Covid crisis. But instead of pondering how to punish companies that adapted successfully to the lockdown, it would be better to ask how we can most effectively accelerate our economic recovery

The case for some resolute tax cutting in the Budget is overwhelming. Excessive taxation can dampen the resolve of the most determined entrepreneurs. Top of the list should be a cut in corporation tax to ten per cent. At 19 per cent the rate is still high compared with several OECD members, and within the EU several countries charge much less. In Hungary it’s only nine per cent, in Bulgaria ten per cent and Ireland’s main rate is 12.5 per cent.

The low rate in Ireland has attracted a long list of international companies with at least a major office in Ireland, and often their European headquarters. Facebook has its European head office in Ireland, as does PayPal, while Google has a major presence. Airbnb has 500 employees, eBay has 900, and Microsoft 2,000. Other big names include LinkedIn, Accenture, HP, Apple, IBM, Pfizer and Pepsi.

It’s true that tax-avoidance shenanigans were heavily implicated in the location decisions of some of these companies, but the low headline rate was the clincher.

What would a cut mean for the public finances? In 1919-20 UK revenue from corporation tax was £63.2bn. If the rate were cut from 19 per cent to tern per cent this figure would be significantly lower, perhaps around £30bn.

However, we can predict a large increase in jobs, which in turn would increase revenue from income tax and national insurance. Both are far more important than corporation tax. In 1919-20 total HMRC revenue was £633.4bn, with income tax producing £193.2bn and national insurance £142.8bn. Revenue from both can be expected to go up sharply. Increased economic activity resulting from the cut in corporation tax would also raise the take from VAT, which brought in £129.9bn in 2019-20. If the revenue from these three taxes increased by only seven per cent it would more than make up for lower receipts from corporation tax.

Cutting the headline rate of corporation tax would also reduce tax avoidance and encourage companies operating primarily in the UK. It is notoriously easy for international companies to shift profits to overseas subsidiaries and pile costs onto their UK branches to reduce taxable profits. It’s much harder for companies whose operations are mainly in the UK to hide their profits, and a cut in the headline rate of corporation tax would be a just reward for their patriotism.

For many years the OECD has tried to reduce the scale of avoidance through its Base Erosion and Profit Shifting (BEPS) project. Member countries invariably give it lip service but little has been achieved. There is a huge literature about the devices deployed to avoid tax via controlled foreign subsidiaries, including strategies based on transfer pricing, the allocation of interest payments, and charges for intellectual property.

The lower the tax on profits, the less it’s worth spending on an army of accountants and lawyers to shift profits without breaking the law. And if international companies engage in fewer tax dodges, the Treasury can spend less on prevention. HMRC now has over 67,000 staff. Some could be transferred to more productive activities.

To make it clear that the aim is to incentivise job creation, the Government could also abolish capital allowances. At present when a company builds a factory or adds a production line it can’t treat the outlay as a cost that can automatically be deducted from taxable profits. Expenditure has to go into a special pool and is deducted from profits over time. It has long been recognised as a perverse incentive against investment, and in 2019 and 2020 the Government increased the capital expenditure that is deductible from £200,000 to £1m. Some want to increase this ‘annual investment allowance’ still further and to add to the list of items covered by the ‘first year allowance’, which is over and above the annual allowance.

But it would be lot simpler just to scrap the whole system and allow all investment in new productive assets to be a deductible cost. Such a dramatic step could easily lead to the multiplication of Nissan-style factories and well-paid jobs throughout the left-behind regions.

Cutting corporation tax would upset the European Commission, which may renew its protests against the evolution of the UK into Singapore-on-Thames. But having learnt nothing from the row over vaccine distribution, it will find itself vainly huffing and puffing again.

The Government is determined to spread prosperity to every corner of the land, but it should not be content with measures like posting civil servants to the North and redistributing infrastructure spending outside the South East. Improving roads, rail, ports and the internet is an essential component of a strategy of economic rejuvenation, but it’s no substitute for cutting corporation tax. Combining the two could be transformative.

David Green: The new Commission on Unalienable Rights allows us to compare America and Communist China

3 Aug

David Green is CEO of Civitas.

Is it time for a change of policy towards China? As we rethink our strategy, instead of referring to China, we should speak of the Chinese Communist Party (CCP) to remind ourselves that we are dealing with an authoritarian dictatorship. We will constantly misunderstand Chinese rulers if we fail to recognise a simple truth: the ruling party in China is an organisation for keeping power in its own hands. It is as much in conflict with the Chinese people as with foreigners, as the experience of Hong Kong has reminded us.

The party doesn’t even have the excuse of believing that its high ideals justify violent methods. Everything is an instrument for keeping power. If voicing highfalutin ideals helps, then they will be proclaimed. If ideals widely shared in human history are obstacles, such as universal values and an autonomous civil society, then they will be denounced. Power is everything.

In the West, we are reluctant to think that a regime could be quite that bad. There is good in all of us and we never stop looking for it. But the internal documents of the CCP repeatedly give the game away. Take one prime example, the infamous Document Number Nine, distributed to party leaders in 2012 soon after Xi Jinping came to power. It was leaked the following year and we know that the person responsible was jailed for seven years for revealing state secrets. They didn’t want us to know about it. A translation is freely available on the website of the online publication, ChinaFile.

The document highlights seven false ideological trends found among the Chinese people. The first is promoting Western constitutional democracy, whose dubious characteristics include the separation of powers, the multi-party system, general elections, and an independent judiciary. The goal of Chinese enthusiasts for Western constitutional democracy is seen as undermining the CCP’s leadership and abolishing the People’s Democracy.

The second target is the promotion of universal values. Chinese people who champion them aim to “weaken the theoretical foundations of the Party’s leadership” and supplant the core values of socialism.

The third ideological tenet is “promoting civil society in an attempt to dismantle the ruling party’s social foundation”. This dubious doctrine holds that individual rights are paramount and that they “ought to be immune to obstruction by the state”. But advocates of civil society want to “squeeze the party out of leadership of the masses at the local level”. The fourth target is the neoliberal market economy, which aims to “weaken the government’s control of the national economy”.

The fifth target is promoting the West’s idea of journalism, which challenges “China’s principle that the media and publishing system should be subject to party discipline”. The ultimate goal of advocating Western-style journalism “is to hawk the principle of abstract and absolute freedom of press, oppose the party’s leadership in the media, and gouge an opening through which to infiltrate our ideology”.

Sixth is promoting “historical nihilism” or questioning the CCP’s interpretation of the past. The aim is “to fundamentally undermine the CCP’s historical purpose, which is tantamount to denying the legitimacy of the CCP’s long-term political dominance”.

Finally there is questioning reform and “the socialist nature of socialism with Chinese characteristics”. If these ideas are allowed to spread, “they will disturb people’s existing consensus on important issues”. Within China’s borders, some private organisations were creating “reactionary underground publications”, filming documentaries on “sensitive subject matter”, and “defaming the party and the national leadership”.

The seven ideological trends must be resisted by strengthening “leadership in the ideological sphere” and forcefully resisting “influential and harmful false tides of thoughts”. The party must not permit “the dissemination of opinions that oppose the party’s theory or political line”. There must be “unwavering adherence to the principle of the party’s control of media”. We must persist in “correct guidance of public opinion, insisting that the correct political orientation suffuse every domain and process in political engagement, form, substance, and technology”.

Finally, the party must reinforce our management of “all types and levels of propaganda” and “allow absolutely no opportunity or outlets for incorrect thinking or viewpoints to spread”. The party must “strengthen guidance of public opinion on the Internet” and “purify the environment of public opinion on the Internet”.

If the document had aimed to define totalitarianism as succinctly as possible, it could hardly have done a better job. As it happens the US State Department has just published the report of the Commission on Unalienable Rights, which allows us to compare America and Communist China.

There are plenty of Americans who criticise their own country, most notably for failure in race relations, and there are some who detect a whiff of unbridled power seeking in President Trump’s proposal to delay the November election. He was, however, overruled by Congress within a few hours (whereas no one in China can overrule the supreme leader).

The report of the Commission on Unalienable Rights is a nuanced defence of a free society, which steadfastly defends its own values without arrogance or righteousness. The preface begins with an acknowledgement of America’s faults. With recent racial divisions in mind, it says:

“With the eyes of the world upon her, America must show the same honest self-examination and efforts at improvement that she expects of others. America’s dedication to unalienable rights – the rights all human beings share – demands no less.”

The report reaffirms America’s commitment to the Universal Declaration of Human Rights (UDHR) because it reflects America’s founding values. Perhaps with China in mind, the report asserts that there can be no moral equivalence between “rights-respecting countries that fall short in progress toward their ideals” and countries that “regularly and massively trample on their citizens’ human rights”.

Maybe the sharpest contrast with Document Number Nine is found in the declaration that “in a free society, the laws will leave a vast range of human activity to the conscience of each” and in its reminder that the US Constitution protects freedom of speech “by declining to give Congress the power to pass laws prescribing or proscribing beliefs, utterances, and publications”.

The report urges the American Government to defend human rights with renewed vigour, with pride in what has been accomplished, combined with humility born of the awareness of her own “shortcomings and imperfections”. But, it proclaims that in the war of ideas between liberal democracy and autocracy, “the uneven progress of liberal democracies does not invalidate the lofty goals to which they are dedicated”.

About the same time as Document Number Nine was being sent to Communist leaders, our own David Cameron and George Osborne were declaring a “golden era” in relations with China. Looking back we can perhaps see that this was one of the biggest foreign-policy blunders of recent times.

The “equalities” industry has entrenched division. It must be swept away.

11 Jul

“I have a dream,” declared Martin Luther King on August 28, 1963, “that my four little children will one day live in a nation where they will not be judged by the colour of their skin but by the content of their character.” That inspirational cry for justice – for a colour blind society of individual opportunity and responsibility – has been betrayed. Those thwarting that dream are not the white supremacists, but the supposed “anti-racists” in the equalities industry.

This bitter irony will not have escaped the notice of the more assiduous followers of current affairs. Outfits such as “Black Lives Matter” have not been championing cohesion, harmony, and equal treatment. They have been dedicated to division, discrimination, and separatism.

We have seen ethnic minorities being targeted for abuse for exercising dissentient thought. As Kemi Badenoch, the Treasury and Equalities Minister, said:

“Sadly, some are willing to casually dismiss the contribution of people who don’t conform to their expectation of how ethnic minorities should think and behave. This, in itself, is racist.”

This is not an accident. BLM is a revolutionary group – with the usual demands about overthrowing capitalism, defunding the police, generally smashing the system, and so on. From their perspective, generating a race war makes perfect sense. They will be delighted if white people are antagonised and start unfurling “white lives matter” banners.

Enoch Powell gave a speech in 1968 quoting a constituent warning that the “black man will have the whip hand over the white man”. Fair-minded people would have to say that in the half century that followed, Powell’s lurid warnings of conflict have been proved wrong. We have remained an island of great tolerance. But police officers getting down on their knees to atone for their collective guilt in being white will not help race relations. Provoking thoughts that, “maybe Enoch was right after all,” is, of course, exactly what many BLM militants hope white people will think.

What should the Government’s response be? It should pass a Non-Discrimination Act ensuring the public sector follows the principle of true equality. That doctrine genuinely is and should be colour blind. We should not “positively” discriminate based on colour, or on sex or sexuality: this discrimination is exactly the evil our credo is meant to be fighting.

When I became a councillor in Hammersmith and Fulham in 2006 I proposed that we should treat people on merit and regard their colour as irrelevant – and so cut back to a minimum, all the box-ticking, form filling, creepy ethnic monitoring, and the legion of staff required to undertake all this. At one of the first presentations I went to, the Regeneration Director talked about the Council’s programme to ‘help black and ethnic minorities into employment.’ The justification was that unemployment was disproportionately high among this – intrinsically artificial – category. But my point was that any help to unemployed people should be provided on an equal basis – that the ethnicity of an unemployed person is irrelevant and assistance should be purely determined by their individual need. They are people, they are not categories.

It would follow that a “colour blind” law would prohibit any part of the public sector (or any organisation funded by the public sector) asking anyone questions about their ethnicity, religion, or sexual orientation.

There is lots of doublespeak in the law. Talk of “positive action” rather than “positive discrimination”, of “targets” rather than “quotas” abounds. Mike O’Brien, the Home Office Minister in the Labour Government, defended the introduction of ‘targets’ for ethnic minority recruitment into the police force. “Quotas are illegal,” he said. “Targets are about fairness, rewarding talent and putting an end to glass ceilings. Managers will have to deliver their targets.”  The reality is that discrimination is required.

As the sociologist, Peter Saunders, wrote in his excellent Civitas paper, The Rise of the Equalities Industry:

“This means that it is not unfair to discriminate against somebody provided you are helping someone else who belongs to a group which the government favours.’ Once such privileging would have been seen as abhorrent and the last thing public policy would set out to do. Now it is such a commonplace that we struggle to even notice it being done.”

We even saw the Association of Chief Police Officers declare:

‘”Colour-blind‛ policing means policing that purports to treat everyone in the same way. Such an approach is flawed and unjust … This is not enough. In a passively non-racist environment, racists can still thrive, discriminatory organisational structures and practices can still persist, and racism in the broader community can go largely unchallenged.”

Another way that the “equalities” agenda has harmed the interests of those it is supposed to help is for children in care. Social workers now seek, not a willing home, but an “ethnic match”. The upshot is that many black children are stuck in the care system, if only white prospective adopters are available. Thus those children are denied a permanent loving family and their life prospects are greatly harmed. A colour-blind law would make such discriminatory behaviour by the police and social workers illegal.

Could it be done? It would certainly break the consensus. One example will give a perspective on the parameters in which current policy operates. In 2011, David Cameron attacked Oxford University saying it was “disgraceful” it admitted so few black students. The university responded with statistics showing that it had 12,671 white students, 1,477 Asian students, 1,098 Chinese, 838 mixed-race, 254 ‘other ethnicity’ and 253 describing themselves as ‘black’. If the Chinese and Indians are ‘over-represented’, as they do well at A-level grades, should they be turned down to make space for white children with lower grades? With a colour-blind law, this pernicious exchange would not even be possible. Oxford would be prohibited from even asking their students such questions.

Would such a change be impossible? There is an analogy with Brexit. Initially only a handful of MPs would be expected to back such a demand openly. Just as only a handful of them backed Better Off Out when it was launched in 2006. However, there would be significant support in terms of public opinion, and not just among Conservatives.

In the film, Guess Who’s Coming to Dinner, Dr. John Prentice, played by Sidney Poitier, a black man is cautioned by his father against marrying a white woman. John tells his father:

“You think of yourself as a coloured man. I think of myself as a man.”

That encapsulates the issue we face.

A clean break is needed. Just lifting requirements on the public sector is not enough. All the equalities paraphernalia must be banished. All the grievance-mongering for collective groups swept away, to allow a true end to discrimination, with the rights of each individual valued and respected. All the quotas, targets, monitoring, thought policing, impact assessing, “Women’s Studies”, “Black Studies”, “Black History Month”, need to be not just pruned, but pulled up by the roots. Then put down plenty of salt to stop it all growing back. Then we can be – as the tennis player Serena Williams tweeted  – “one race, the human race.”

A longer version of this piece has appeared in The Critic.