The truth about corporate taxes

I’ve chosen to write about corporate tax rates this week not because they’re the sexiest subject available but because – unlike the government’s frontbench, the value of the pound and the scale of winter fuel bills – they’re unlikely to change dramatically during the shelf-life of this column. An increase in corporation tax from 19 per cent to 25 per cent, originally announced by Rishi Sunak, will go ahead in April, despite new Chancellor Jeremy Hunt’s own leadership campaign pledge to cut the rate to 15 per cent, which would have placed the UK between Ireland and Singapore in competitive tax tables. The uplift will, we’re told, tip £19 billion (based on HMRC’s reckoner of £3.1 billion per percentage point) into the public-finance black hole which so spooked the bond market. So that’s all right then.

But in reality, the corporate tax take is a dynamic function of business efficiency, economic health and international reputation. Personal taxes, on which citizens vote, pay for the bulk of government; corporate taxes and reliefs should be seen first and foremost as levers for generating higher performance, not least by attracting inward investment, which in turn generates higher personal incomes. But low corporate tax rates do not boost investment unless wider prospects are predictably favourable; and high corporate rates are neither a moral good in themselves nor a guarantee of higher revenues.

What’s my point? That when the current hoohah dies down, whoever is chancellor should be brave enough to revisit the corporate tax piece of the mini-Budget fiasco and propose a regime that really does help put the UK ahead of its competitors. What we have for now is a market-calming stopgap with a revenue number attached that might as well have been pulled out of thin air.

Tucker’s takeaway

Sir Paul Tucker – the former Bank of England deputy governor who I last glimpsed at Buckingham Palace forlornly collecting the gong that was his consolation for not winning the governorship in 2013 – has come up with a partial remedy for the public finances. Now a Harvard academic, Tucker points out in an Institute for Fiscal Studies paper that the £838 billion of quantitative easing (or money-printing) clocked up by the Bank since 2008 has created huge cash reserves held by commercial banks with the Bank of England which accrue interest at the official base rate. As that rate rises from its current 2.25 per cent to 5 per cent or higher, the government’s debt-service cost will rise accordingly – as will bank profits, to the benefit of shareholders and executives but not of depositors and borrowers.

But if the Bank and the Treasury decided to pay ‘low (or no) remuneration for some large portion of reserves’, says Tucker, the saving could be £30-45 billion per annum for the next two years, equivalent to 9 per cent of total public spending on health, education and defence.

Commercial banks affected will howl that such a draconian move would be a windfall tax in disguise. But it would address an unintended consequence of QE by skimming an accidental layer of profit – while the mere threat of it might encourage banks to pay better rates on deposit accounts and show more tolerance to struggling borrowers. If Jeremy Hunt and governor Andrew Bailey have ‘an immediate meeting of minds’, as we’ve been told, they should be talking turkey about Tucker’s takeaway.

A more mobile post office

News of 10,000 job cuts and £350 million of losses in prospect at Royal Mail (now – who knew? – a division of International Distributions Services plc) came on a day when I was trying to send a book from Yorkshire to Minnesota as a thank-you to one of my recent hosts there. But the post office for our busy town closed six years ago, to be replaced by a counter in a mini-supermarket – which went out of business in August with no notice to customers or staff. So I drove to a nearby village, whose sub-postmaster said his computer was down and he had no idea when it might be back up.

Returning to town, however, I found a mobile post office parked in the market place. Though it was past closing time, its operator despatched my package and said how happy she was to have one last customer for the day: a perfect example of the idealised but dying postal service, proudly ‘connecting every house and business every day’, that I wrote about in July.

There are two distinct businesses in this story – but, for consumers, one vital service. The state-owned Post Office network withers under cost pressures as it fails to live down the shame of its mistreatment of sub-postmasters over the Horizon IT system. The privatised Royal Mail is a sad parable of hostile industrial relations and missed opportunities. GLS, its international parcels arm, is as profitable as the domestic delivery side is loss-making, but ‘the board has always maintained that there should be no cross subsidy’, we’re told, presumably so that GLS’s value as a potential spin-off can be preserved while the rest is eaten by gig-economy competitors. The whole set of mail services that were once part of the General Post Office needs rethinking, recombining and rebuilding from the bottom up. Maybe the friendly mobile van in the market place offers a model.

Foreign exchanges

I hear news of another British traveller to the US who ventured as far as the desert state of Nevada and found his way to one of its many legal brothels. Presented with a line-up of hostesses to choose from, he picked one and whispered a request in her ear. She squealed and ran out of the room, as did a second. After a third slapped his face and hissed ‘No way!’, the proprietor – herself an unshockable veteran of the oldest profession – stepped in and prodded him in the chest: ‘Hey buddy, what the hell are you asking my ladies?’ The Englishman adjusted his spectacles: ‘I just wondered whether I could pay in pounds sterling?’