It’s very simple. If we want the UK to be a winner in the rough and tumble of the global economy we need to be as competitive as possible. Future economic growth and job creation are dependent on the UK staying “match fit”.
The departure of another multinational company from the UK’s shores for a lower tax regime — on this occasion the building materials company Wolseley to Switzerland — is further evidence of an underlying competitiveness problem. We have already lost names such as WPP, Brit Insurance, United Business Media, Regus, Charter, Ineos, Henderson, Shire and Informa for similar reasons.
So how did we find ourselves in this worrying situation and what can we do about it? To answer these questions we need to take a step back and look at the recent past.
For many years the UK economy has had two significant handicaps: poor infrastructure created by a lack of spending on energy generation and transport, and a workforce that still lacks the basic skills of literacy and numeracy. And yet, despite these problems, the UK has continued to be viewed as a good place to do business by multinational companies.
Why? The answer is not complex — our competitive weaknesses in infrastructure and skills have been offset by other strengths, such as the UK’s financial services centre and, notably, our internationally competitive tax system.
But this has changed, and changed for the worse. Financial services have taken a well-publicised knock to say the least, and our advantage relative to other countries on the tax front has been lost. Yes, UK corporation tax has come down from 33 per cent in 1996 to 28 per cent today, but our competitors have cut their rates faster and harder. Back in 1996 the UK had the fifth-lowest corporation tax rate in the OECD (the world’s 31 leading developed countries). Now 18 OECD countries have lower rates than the UK. In effect, we are sitting in the slow lane while our competitors overtake us.