Home » UK (Page 2)
Category Archives: UK
Canada’s corporate tax rate remains at 15% and that low tax rate was one of the reasons the country essentially cruised unharmed through the financial crash of 2008 and its bloody aftermath.
Throughout the global financial meltdown Canada easily led all G7 countries in growth (although Canadian growth was curtailed as compared to pre-crash projections) and the country didn’t need to increase taxes, nor make major fiscal or monetary adjustments during that period.
Although the country isn’t thought of as an offshore tax haven by any stretch, having a 14.5% corporate tax rate during the global economic crisis (it’s since risen to 15%) meant the country avoided the exodus of capital that other nations experienced.
That reasonable corporate tax rate as much as any other factor helped Canada to survive and thrive in the face of one of the most damaging economic meltdowns in modern history.
Money fleeing the country to low corporate taxation destinations is NOT what the UK government needs any time over the next decade.
Will There be Another Recession?
Of course there will be another recession. Recessions in Western countries occur every 25-years on average although unexpected economic shocks have been known to occur. Just because the average interregnum is 25-years, doesn’t mean recessions can’t also happen randomly — which means that the UK needs to begin playing it smart, now, to better survive the next global downturn.
Why Match Canada’s Rate?
Canada’s corporate tax rate just happens to fall within an economic ‘sweet spot’ — high enough that it doesn’t get named and shamed as an offshore tax haven (which tend to get a lot of bad press when a recession is on) yet is close enough to other developed nation corporate tax rates that it doesn’t get a bad reputation.
All else being equal, you want to go with what works. And Canada’s low corporate taxation plan worked wonders to help the country coast through the last recession — and it performed even better than expected, pre- and post-recession.
Sure, there were nervous moments here and there, nobody denies that. But that 15% rate combined with a steady hand on the economic tiller by Mr. Mark Carney then-governor of the Bank of Canada (now governor of the Bank of England) and the country under the steady leadership of (then-Prime Minister) Stephen Harper added gravitas and confidence to the Canadian economy at a time it was needed.
That’s all it takes to survive and thrive in recessionary times, folks.
Philip Hammond’s Next Budget
UK Chancellor of the Exchequer Philip Hammond should match Canada’s corporate income tax rates exactly, and publicly commit to that at Spring Budget 2019. Or even better, in Autumn Budget 2018.
Due to Brexit there is a real need to write both a spring and autumn budget each year, at least until the 2-year implementation period is complete.
Lowering corporate taxes could mean less revenue for HM government. That’s a possibility. But there are positives to a lower corporate income tax rate for the UK, particularly during the present economic uncertainty:
- More companies will move their headquarters to the UK to obtain a better corporate tax rate.
- More UK companies will decide to stay in the UK rather than leave it for (perceived) greener pastures during this period of economic uncertainty, although they could well have plans to return 5-years on from Brexit. (But can you count on that?)
- UK-based companies will have more money to invest in their UK operations, to increase non-labour purchases, and perhaps expand their existing factories, facilities, or number of retail outlets.
- UK companies that presently fear Brexit may hurt their business may find that as the UK corporate income tax rate falls to 15% it gives them a competitive advantage of 5% they didn’t have prior to this (proposal). Less fear and better after-tax profits. ‘Gotta like that’ said every CEO ever.
- Instead of the government needing to stimulate the economy, increased spending by UK companies flush with newfound cash will help to stabilize the economy now and through the 2-year implementation period via increased spending and hiring.
- Hiring more workers with a 5% tax savings means more revenue for HM government — as many of those workers will earn enough to pay an average 45%-55% personal income tax rate.
That’s just a short list of the benefits of lowering the corporate income tax rate to 15% and if the tax reduction announcement is timed correctly HM Revenue and Customs shouldn’t suffer any loss of revenue — and it’s possible that HMRC may receive slightly more revenue courtesy of additional personal income tax contributions if companies go on a hiring spree with their saved money.
Here’s a bonus graphic to show *what can happen* when you cut the UK corporate income tax rate…
One of the conundrums of EU membership for the UK has been the mass influx of people from the continent since 1993, but especially from 1998-onward. Some 8-million immigrants now call the UK home — of which 3.3-million are EU citizens who moved to the UK to work or study.
Suddenly dumping 8-million people (or even 3.3-million Europeans) into a country puts an unprecedented strain on the country’s housing market. Since 1993, property prices in the UK have risen to become some of the highest priced property on the planet sometimes pushing native Britons aside and into high-priced rental accommodations.
Although these mass migrations began in 1993 when the UK joined the EU (bereft of any referendum) the population of the UK had been holding near 57.7-million with almost no annual growth in the UK population. In recent weeks the population of the UK has surpassed 66-million. It’s easy to see from this calculation that the UK-born population only increased by 1-million from 1993-2018, while the balance of the country’s population increase (8-million) occurred as a result of immigration.
Therefore, is it any wonder that house prices are expected to fall once Brexit occurs and the UK government is again in charge of how many immigrants it lets into the country? Certainly the demand for housing and services will fall to equilibrium levels as supply once again approximates demand.
Is it Possible to Determine Housing Policy Before Immigration Policy is Decided?
In a word, no.
As long as unrestricted immigration continues any housing policy is doomed to fail no matter how well-intentioned. When numbers of immigrants rise or fall by the hundreds of thousands per year trying to fine-tune the UK’s housing policy is impossible.
The same holds true during the 2-year Brexit implementation period; Immigrants living in the UK may decide to return to their countries of origin at a rate the UK government won’t realize until well after it has occurred.
Assuming the government places a cap on immigration (of say, 200,000 per year) during the 2-year implementation period… it still leaves the variable of how many immigrants will leave the UK post-Brexit.
As you’ve correctly deduced from reading the above, TWO VARIABLES have been at play in the UK’s housing/immigration market since 1993. No wonder there’s been chaos!
Post-Brexit, there will only be one variable — and that one variable could still be a large factor in this equation — which is why immigration levels should continue to remain high-ish to level-out the expected crash in housing demand that will negatively impact house prices and rental rates.
In short, the UK government’s approach must be to utilize immigration levels as a lever to facilitate a stable housing market otherwise housing demand will crash and property values will fall precipitously triggering a mini-recession in the UK.
What is the Best Rate to Taper UK Immigration?
Last year, the UK allowed over 300,000 immigrants into the UK (great for UK businesses that depend on cheap labour) but it puts severe demand on housing and leads to vastly overinflated house prices.
Were the UK to drop immigration down to zero in 2020, not only would demand for new housing crash, it could also happen that large numbers of immigrants may leave the UK. How many? No one could say. It could be thousands, hundreds of thousands, or even millions.
How can you create a housing policy when your assumptions may be off by millions of people? You can’t.
Therefore, whatever changes there are to be in UK housing policy for the next 5-years, it will be best that the government make only incremental adjustments to immigration numbers, net immigration numbers, and in housing policy — adjustments that strongly adhere to whatever housing market situation develops, as it develops.
Allowing housing prices to drop precipitously (even while recognizing those prices are at present vastly overvalued and must eventually return to reasonable levels) could wreak havoc with the UK housing market, with people’s lives, and with the UK economy.
It’s a rare occurrence when policy must follow an evolving situation instead of leading it.
UK immigration policy that follows evolving housing market conditions will allow allow a gentle and ongoing reduction in the outrageous housing prices in the UK’s major cities to something approximating a normal housing market.