Ritchie\’s latest

However, a Reuters analysis found that
large corporations in the UK now pay less
corporate income tax than a decade ago
even though profits have risen sharply.
According to one measure compiled by the
Office for National Statistics, overall annual
corporate profit has risen 65 percent
since 2000, to 329 billion pounds ($532 billion)
last year. In the same span, the amount
of corporation tax paid by large companies
fell, to 21 billion pounds, down 21 percent
or 5 billion pounds since 2000/01.

OK, so it\’s not quite Ritchie but he\’s on the bandwagon. There\’s a number of problems with this of course.

1) They are comparing tax paid by big business with total profits in the economy. Has there been a structural change in the size of companies? I dunno: but it\’s something that does need to be known.

2) You might have noticed that there\’s been a certain amount of globalisation. Meaning that at least some large UK companies have been making their profits elsewhere. And paying tax elsewhere.

Swollen deficits
and cuts in government spending make
tactics like those used by multinationals
such as Google, Amazon and Starbucks increasingly
sensitive.
“What we’re seeing is a scaling up overall,
over the last 10 years, of tax avoidance,”
said John Christensen of the Tax Justice
Network, which campaigns on tax issues.
“It has become a much bigger issue.
Successive (UK) governments have been
sending out strong signals that they were
going to be fairly lenient in their attitude
towards this.”

No John, no. The EU has insisted that successive UK governments cannot, may not, are absolutely forbidden, from taxing those internet companies who are obeying every jot and tittle of EU tax law. By treating the Single Market as, you know, a single market.

Ritchie promises us much more in the Mail. What\’s the betting that he actually manages to quote even this paper wrongly?

6 comments on “Ritchie\’s latest

  1. A number of possible reasons:
    1) Banks have made losses which have been carried over
    2) Large companies are more likely to be increasingly globalised – ie paying taxes elsewhere
    3) Small companies make up a larger portion of the economy
    4) They themselves mention a small decrease in headline tax rates
    5) Big companies are much better at utilising allowances than small companies.

    The only one that would worry me is number 5, to which my solution would be make tax a lot less complicated and lower the headline rate.

  2. I think they need to show that they are using a relevant measure of profitability. The ONS definition is :

    “The gross operating surplus of PNFCs consists of gross trading profits, plus income from rental of buildings, less inventory holding gains.
    Gross trading profits include only that part of a company’s income arising from trading activities in the UK. It does not include income from investments or other means, such as earnings from abroad.”

    Corporation tax is charged on net profit ( adjusted as required by tax law). That is clearly a very different measure. They need to show why it is reasonable to expect that gross operating surplus would obey the same trend as net profits. It might – or it might not. You might, for example, find that UK plc is, as a whole, more highly leveraged now than in 2000 (remember all those private equity deals).

  3. I should have said that Reuters original report was using gross operating surplus, which the quote in Tim’s piece above does not make clear.

  4. If you want the raw data, you could try tables A22A-C here:
    http://www.ons.gov.uk/ons/datasets-and-tables/data-selector.html?dataset=ukea
    These show that non-financial firms paid £38.1bn of tax in 2011, equivalent to 14% of gross operating surplus (I’m using code identifiers ROZQ from table A22A and RPJW from A22B). This is a slightly higher rate than in the early 00s, but less than in the late 80s.
    You can get the figures for financial firms yourself.

  5. I think the main reason is that the rate of corporation tax has been reduced over the last ten years. I cant remember the the details and I can’t be bothered to look them up.

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