The proposed relocation of the advertising company WPP's headquarters from Ireland is little more than a publicity stunt
Who says the BBC doesn't run advertising? Thursday's Today programme featured a repeated ad from one of the industry's leading exponents. WPP's Martin Sorrell was given top billing as the man who vindicated the chancellor's budget by announcing an intention to "relocate" to London.
Pre-budget George Osborne had been casting around to find an exiled British company to "win back" with the promise of lower taxes. The day after the budget, Today was duly trumpeting the return of advertising giant WPP to Britain as the first item on some bulletins ? ahead of all other budget reaction, the ongoing bombardment of Libya, the continued Arab uprisings, and the nuclear crisis in Fukushima.
So this must be big stuff, right, and a confirmation of Osborne's policy? Well, not quite. Just a very slick promotion for a very dodgy product.
It remains to be seen how much of WPP will actually be relocating to Britain. It seems that the Dublin sojourn only ever amounted to eight employees, and they may not have stayed in the Irish tax haven for very long. More importantly, clarity is needed on whether lower taxes amount to a net benefit for the economy.
Low taxes apply to firms in general, not just those switching domicile or making investments. Therefore any benefit from attracting new capital must be weighed against the cost of lower tax revenues from all firms. According to the budget document from the Treasury (table 2.1, p42) the net cost of cutting corporate tax rates over the next five years will be a cumulative �4.22bn.
Put another way, this is more than the amount "saved" by removing the mobility allowance from the residential disability living allowance, plus removing the housing benefit allowance for a single room for the under-35s, plus the cap on total benefits for large families at average take-home pay, plus the reduction in benefits for lone parents, plus removing the child tax credit for kids under two (table 2.2, p44-45).
Of course, a key difference between the giveaway for companies and cutbacks for the poor is that lower taxes may simply be used to boost dividends and profits rather than investment, whereas those on benefits are obliged to spend their incomes. Their spending works its way back through the economy and into government coffers via taxes, having boosted demand, wellbeing and jobs along the way. In Britain, individuals pay three times as much tax as companies do (Budget, chart 2, p6).
For those who believe that low taxes are the sole or even main determinant of company location, including the chancellor, the WPP decision to return to Britain is surely an odd one. At the end of this parliament, continued tax cuts by London will still leave the main rate of corporation tax nearly twice that of Ireland's ultra-low 12.5%.
This is because tax rates are way down the list when it comes to attracting investment ? the main determinant is productivity, which requires investment. Ultra-low taxes do not boost growth ? and they can help to undermine it. Dublin and Reykjavik have the lowest rates of corporation tax in the OECD. Even the gifted Sorrell would be hard-pressed to promote low taxes using these two economies as poster boys. Instead, low taxes undermine government's ability to invest in infrastructure, housing, transport, communications and education ? all the factors that do boost productivity and attract investment.
But the chancellor has chosen the opposite path of low corporate taxes, deregulation and public spending cuts. His advertising slogan should be: "This sweatshop is open for business."
Source: http://www.guardian.co.uk/commentisfree/2011/mar/24/wpp-corporate-tax
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