Tax Competition May Force Further Corporate Tax Rate Reductions in England

The beneficial impact of tax competition can be seen in this Financial Times report on the UK tax system. The corporate rate has finally been lowered, but other nations are reducing tax rates even faster, so Gordon Brown is being pushed to cut tax rates yet again:

This year’s cut in the corporate tax rate has failed to push the UK decisively up the international rankings, according to a new survey that shows Britain’s efforts to improve its tax competitiveness have been blunted by similar efforts elsewhere. The UK now has the 20th lowest corporate tax rate of the 27 European Union member states, a slight improvement for businesses on last year’s 21st position, according to the survey by KPMG, professional services firm. …KPMG said: “This continued downward pressure on worldwide and European corporate tax rates will add to the pressure on the UK authorities to address the UK’s perceived lack of competitiveness on tax.” The impact of April’s 2 percentage point cut to 28 per cent was tempered by cuts elsewhere, which pushed average global and European corporate tax rates down by 1 percentage point. The UK’s corporate tax rate remains higher than the global average of 25.9 per cent and the EU average rate of 23.2 per cent. The UK’s corporate rate cut ensured that it continued to have a lower rate than Germany at 29.5 per cent, preserving the Treasury’s goal of having the lowest rate in the G7. But the UK is facing tough competition for holding companies from smaller low-tax European rivals, particularly Ireland, Luxembourg, Switzerland and the Netherlands, as demonstrated by recent moves out of the UK announced by Shire, UBM, Henderson, Charter and Regus.