Will Brexit Turn Britain Into a Corporate Tax Haven?
The Chancellor has implied that we'll bow to big business to spite Europe.
(Top photo via publicdomainphotos.net)
You couldn't make it up. Actually – you could. That's exactly what they're doing. Brexit has become a creative writing assignment for politicians, and they're letting their imagination run free. "Forget beginning, middle and end; forget all sense of structure!" their beleaguered English teacher tells them. "Just write whatever you want."
Philip Hammond sits with a blank piece of a paper and a crayon, looking at the playing fields through the windows, daydreaming. When he finally hands his assignment in, it's only five words long, scrawled in big letters so it takes up the whole page: Make Britain a Tax Haven.
This was what was widely understood from an interview with the Chancellor published yesterday in the German Sunday newspaper Welt am Sonntag. To be fair, Hammond didn't use the term "tax haven" himself; it was used by the interviewers, who told him that the impression on the European continent was that Britain sees its future business model after Brexit "as being the tax haven of Europe".
Rather than dismissing the ill-formed idea of turning Britain into a floating Luxembourg, Hammond flirted with it. The implicit threat of doing so could be used as a bargaining chip during Brexit negotiations, he hinted. He said that although he wanted Britain to remain a "European-style economy... on the US end of the European-spectrum" – i.e. the reason your life is worse than a continental European's but better than an American's – his government would consider "[being] something different" if they were forced to.
When pressed on what he meant – "We don't understand; who or what would force you?" – he said:
"If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term. In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do. The British people are not going to lie down and say, 'Too bad, we've been wounded.' We will change our model, and we will come back, and we will be competitively engaged."
Yes: that's right. The grit and determination of hard-working, alarm-clock, rule Britannia Britons is so great that the government is willing to shred the few remaining fibres of the social safety net and further deregulate the City of London just to teach the Europeans a lesson.
We're already bending over backwards for big business. Theresa May's pledge to cut corporation tax – which was already massively reduced by the coalition government – to below 15 percent, making it the lowest level of any country in the G20. By way of comparison, the equivalent rate in Germany is 30 to 33 percent, and in the US it's technically 40 percent, although in practice is often lower.
Could we really go any lower? And what would that do to the economy? Tony Norfield, a former City trader and author of The City: London and the Global Power of Finance, told VICE that although he agrees "the prospect is being used as a threat by the UK in the current pre-negotiations", it's hard to see Hammond's "tax haven" plans being much of a go-er.
"Although it could lead to the relocation of some corporate HQs to the UK and the headlines might look good for [the government], the economic impact would be minimal," he explained. "Even in terms of tax revenues from corporation tax, if the general tax rate is reduced there would have to be a large number of extra companies paying it to bring about higher total revenues."
He also pointed out that it's unlikely "tax haven" is being used in its technical sense, since it "wouldn't be feasible for the UK to adopt a Cayman Islands approach to taxation".
"Given the costs of running the UK state and the magnitude of its expenditure – the Caymans does not have its own nuclear submarine! – [Britain] would have to attract every company on the planet to make up for the lost tax revenue," he said.
So the chancellor is squaring up to the EU, threatening that if it plays hardball in Brexit negotiations Britain will fight back by implementing a plan that… doesn't actually work.
If Hammond's plans for a tax-cutting, deregulating Brexit is causing worry this side of the Atlantic, it certainly isn't in the White House – or, at least, in Trump Tower. Brexit was getting all the praise it could from Donald Trump, who appeared in his first interview as President-Elect with a British publication today. Speaking to Victorian hand puppet Michael Gove in The Times, Trump claimed it was smart to leave because the EU is "basically a vehicle for Germany". He also said that his administration would secure a new trade deal for a post-Brexit Britain. Although he didn't add any details, he said it would be "done quickly and done properly", since he's a "big fan of the UK".
Days away from the Presidency and months away from triggering Article 50, both Trump and Hammond spent their weekends speaking in generalisations, grounded by generic appeals to capitalist interests. British business "is unbelievable" (Trump) and free trade will flourish with "countries around the world" (Hammond). Both Brexiteers and Trumpists say they speak for the working-class and the left behind, but as their speculative plans start to congeal, they're looking more and more like the failed economic models they claimed to do away with.
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