Anthony Hilton: A taxing issue that could bite firms

Lord Levene, chairman of Lloyd's of London, said in a speech in the House of Lords earlier this month that only nine of the 53 companies active in the insurance market were domiciled in the UK for tax purposes.

Anthony Hilton
Anthony Hilton

That does not mean the others all left these shores rather than pay British rates of tax, because some are foreign. But several of the biggest names - Catlin, Hiscox, Omega and Brit - have all taken this course.

Insurance is especially susceptible to the tax regime because the tax treatment of reserves can mean the difference between profit and loss, but it is part of a broader trend. One of the most striking aspects of the past ten years is how large companies have become much more aggressive in their tax planning. Indeed, this was highlighted halfway through the decade by The Guardian, which found that in spite of the surge in growth and profitability between 2000 and 2007, companies were paying a much smaller proportion in tax. One-third of the FTSE 100 paid no UK tax at all and another third paid only token amounts.

There seem to be two reasons for this. One is that at the request of Gordon Brown as chancellor, the collection of tax in this country became much more aggressive. The other is that more chief executives went on to performance pay as the decade wore on, and one way of increasing returns to shareholders is to pay less in tax. Shareholders got their extra returns and executives their bonuses at the expense of the Exchequer - and the rest of us who have to pay more.

If the Government is cutting spending and people are having to pay more tax because of a VAT increase or whatever, then the public might not be too impressed when it finds out how much effort companies put into paying as little tax as possible.

Firms have made a big commitment to sustainability in recent years and others talk about principled capitalism. It is about recognising they have responsibilities to groups other than shareholders. But not, it would appear, to the state via the tax system.

That could come back to bite them.

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