{"id":62263,"date":"2015-09-29T16:52:09","date_gmt":"2015-09-29T16:52:09","guid":{"rendered":"http:\/\/mostafa.openonline.co.uk\/?guid=1328228a3001aba074dee40ef3c21f5b"},"modified":"2015-09-29T16:52:09","modified_gmt":"2015-09-29T16:52:09","slug":"speech-financial-secretary-to-the-treasurys-speech-to-american-enterprise-institute","status":"publish","type":"post","link":"https:\/\/mostafa.openonline.co.uk\/?p=62263","title":{"rendered":"Speech: Financial Secretary to the Treasury’s speech to American Enterprise Institute"},"content":{"rendered":"
\n

Good morning \u2013 I\u2019m delighted to be here.<\/p>\n

Both the UK and the United States have long and powerful traditions of free trade and entrepreneurship. Our economies are open, liberal and always interested in exploring new opportunities. That\u2019s what drives our nations\u2019 wellbeing, and that\u2019s been the case for decades if not centuries.<\/p>\n

The last few years have seen tough times globally as well as nationally. In 2010, we in the UK embarked on a programme to ride out the storm and secure long-term prosperity \u2013 we called it the \u201clong-term economic plan\u201d.<\/p>\n

It was a combination of cutting back on spending the State could not afford; and unleashing growth in the private sector.<\/p>\n

In the UK government, I am the minister responsible for the taxation system.<\/p>\n

It\u2019s a fascinating job, not least because one of the quickest methods of improving \u2013 or destroying \u2013 a country\u2019s competitiveness is through the taxation system.<\/p>\n

Our tax policies stem from a very simple belief: that a low-tax and a efficient-tax economy is fundamental to growth, and that you can only get a functioning low-tax economy if you collect the taxes that are owed.<\/p>\n

We believe that this is what helps businesses prosper: the competitiveness of low taxes, and the certainty of having a properly working tax system in place.<\/p>\n

These are the two principles of taxation in the United Kingdom \u2013 and together, I believe they help make the UK one of the best places to do business in the world.<\/p>\n

It\u2019s almost 150 years since the first American multinational, the sewing machine manufacturer Singer, opened its first overseas factory, in Glasgow. Since then the world has become more interconnected than our ancestors could have ever imagined.<\/p>\n

In basic terms, that gives multinational companies a lot of choices; about where they create jobs; where they conduct research and development; or where their base their headquarters.<\/p>\n

The UK\u2019s ambition is to attract these companies: we are very honest about that.<\/p>\n

And we know that to do so, we have to be competitive in every area.<\/p>\n

That means world-class infrastructure; a skilled, flexible, ambitious workforce; deep and liquid capital markets \u2013 and a highly competitive tax regime.<\/p>\n

So today, I\u2019d like to speak about what the UK has to offer.<\/p>\n

My first point would be that the corporation tax rate really matters.<\/p>\n

When David Cameron became Prime Minister in 2010, our rate of corporation tax was 28%. At the same time, we faced a record budget deficit of over 10% of GDP. Times were not easy.<\/p>\n

I think it is testimony to the importance we attach to a competitive tax system that cutting the corporation tax rate was one of the first things we did.<\/p>\n

Some said at the time that cutting corporation tax was not a public priority \u2013 that at a time when we had to make other difficult decisions on public spending, it was irresponsible.<\/p>\n

We looked at it another way.<\/p>\n

The UK may be the fifth biggest economy in the world. But, in a global economy, we have to make the case that businesses choose to invest, and locate activity, in the UK.<\/p>\n

And we can never take it for granted that they will.<\/p>\n

It was a fact that one of the factors pushing businesses away from the UK was our tax regime.<\/p>\n

And we didn\u2019t believe that corporation tax fell on faceless, abstract, corporate entities \u2013 often considered the bad guys in political rhetoric.<\/p>\n

Ultimately, corporation tax, like all taxes, falls on individuals.<\/p>\n

A high rate of corporation tax means either lower wages for employers, higher prices for customers, or lower returns for shareholders or a combination of the three.<\/p>\n

Moreover, analysis by the UK\u2019s Institute of Fiscal Studies suggests that, because capital tends to be much more mobile than workers, a significant share of the burden of corporate tax will fall, not on shareholders, but on what economists call \u2018labour\u2019, and we politicians \u2013 at least in the UK \u2013 call \u2018hard-working families\u2019.<\/p>\n

A tax on corporate profits reduces the rate of return on investment. This means that there is less investment, and that productivity doesn\u2019t rise as quickly as it otherwise would. Lower productivity means lower wages.<\/p>\n

In other words, all parts of society lose out if your taxes damage investment, productivity, and economic growth.<\/p>\n

That\u2019s why the OECD has said \u201ccorporate income taxes are the most harmful for growth, as they discourage the activities of firms that are most important for growth: investment in capital and productivity improvements\u201d.<\/p>\n

If I may be permitted a small digression, the history of corporation tax in the UK is informative.<\/p>\n

According to Martin Daunton\u2019s history of the UK tax system, in 1919, when the UK was faced with heavy post-war debt, officials from the UK\u2019s Treasury and Inland Revenue were dispatched to the US and Canada, to examine their systems of taxation of profits.<\/p>\n

Our officials concluded that the taxes discouraged productivity and efficiency, but noted that a corporation tax was an impersonal tax: so not a direct burden on any individual.<\/p>\n

Officials also noted the not unrelated fact that it had the support of a large body of public opinion!<\/p>\n

Not surprisingly, these arguments prevailed.<\/p>\n

Since then, Governments have often found it easy to increase taxes such as corporation tax \u2013 precisely because there\u2019s no immediate transparency about where the burden falls.<\/p>\n

And now, 95 years on, it must be acknowledged that corporation tax has become a key part of the international tax system, one which continues to make a significant contribution to public revenues.<\/p>\n

But our view, in the UK, is that one of the best ways you can drive growth in your economy is by lowering it.<\/p>\n

That is why, in 2010, we chose radical action on corporation tax.<\/p>\n

Since then, we have steadily reduced our rate of corporation from 28% tax to 20%, the lowest in the G7.<\/p>\n

This year we announced that we would go further, cutting the rate to 19% in 2017 and 18% in 2020.<\/p>\n

These cuts will save businesses over 10bn USD by 2021 \u2013 helping over one million businesses, whether large or small.<\/p>\n

So what would one expect the impact of our changes to be?<\/p>\n

Our modelling suggests that this stands to increase long-run GDP by more than 1% – which, you don\u2019t need me to tell you, is the order of magnitude which gets Treasuries excited.<\/p>\n

And our independent Office for Budget Responsibility estimates that these cuts, plus reforms to our investment allowances, will help increase business investment by \u00a31.6bn a year by 2021.<\/p>\n

And we would hope that this will be external investment too.<\/p>\n

And what is happening?<\/p>\n

Not only are we seeing business investment increasing \u2013 with a record number of inward investment projects last year \u2013 and some early signs of improvements in productivity.<\/p>\n

Interestingly, we\u2019re also seeing corporation tax receipts strengthening.<\/p>\n

Between 2010 and 2014 \u2013 that is, during the time that we cut the headline rate from 28% to 21% and cut the small companies rate \u2013annual receipts increased by 12%.<\/p>\n

And if you strip out the financial services sector (where receipts have been heavily affected by losses built up in the financial crisis), CT receipts rose by 16% between 2010 and last year.<\/p>\n

Adjusting for inflation, that means that in a period when the headline rate was cut by a quarter, we have seen a real-terms increase in revenue.<\/p>\n

Similarly, over the past three years, we\u2019ve seen blue-chip companies making major new investments in the UK, or actually coming back to the UK.<\/p>\n

Our ambition is to continue that steady flow \u2013 because we believe that it is good for us and good for business.<\/p>\n

But cutting the main rate of corporation tax \u2013 important though this is \u2013 is simply part of a wide suite of measures we are putting in place to make us as internationally competitive as we can be:<\/p>\n