UK should learn from Ireland’s stunning successes
R&D incentives are no substitute for a low tax system
Former Cabinet Minister David Jones: ‘Low-tax economies are the most successful’
The stunning success of the Irish drug industry should serve as a warning to the UK Government against pressing ahead with its plans to increase sharply corporation tax, according to a major new report launched today.
Twenty years ago, Irish pharma exports were worth just 40 per cent of their UK equivalent. But as the fruits of Ireland’s prolonged reduction in corporation tax to as low as 12.5 per cent became steadily more apparent, last year they were worth almost three times the UK level.
Foreign direct investment accounted for 72 per cent of goods exports from Ireland – with almost 40 per cent of these being pharmaceuticals.
As the Chancellor delivered his Autumn Statement this week and imposed a massive hike in corporation tax – from 19 per cent to 25 per cent to take effect in April next year – the report from the Centre for Brexit Policy urges him to learn from Dublin’s success story.
The report shows how Ireland’s low tax policy has undeniably helped to create a booming export industry at the expenses of both the UK and the US.
By comparison, the UK’s focus on R&D incentives has not benefited UK exports, nor even the economic health of UK manufacturing. Make UK, the manufacturers association, has reported that pharmaceuticals received 29 per cent of all spending on R&D in UK manufacturing and yet only contributed 4 per cent to manufacturing turnover.
Commenting on the CBP report, former Cabinet Minister David Jones said:
“This report underlines what we already suspected: that stable, low-tax environments are most likely to attract inward investment.
“Ireland has a corporation tax rate of 12.5%. The UK’s rate is double that. It is small wonder, therefore, that international pharmaceutical companies are choosing Ireland, rather than Britain as their centre of operations.
“If the Government really is serious about growth, it must learn the lesson that low-tax economies are the most successful. The UK has the necessary skills and the talent to provide international companies with a world-class workforce. What it lacks at the moment is a sufficiently benign tax regime. That is something the Government must remedy as a matter of priority.”
Low corporation tax countries receiving disproportionate investment is one of the major reasons behind President Biden’s proposed GMCTR (Global Minimum Corporate Tax Rate) Agreement seeking to set the global minimum at 15 per cent. But it will only come into effect, if implemented, after Ireland’s corporation tax rate rises to 15 per cent.
The report also highlights evidence of the key justifications for a lower tax policy. The Irish government is currently generating record income from corporation tax despite its tax rates being well below the OECD average. Overall, corporation tax is responsible for nearly a quarter of Ireland’s total tax take – in the UK, it is less than a tenth of the total tax take.
There is still some hope for the UK attracting increased investment. The report welcomes Rishi Sunak’s call for a 130 per cent super-deduction, saying that “resonates with recent analysis” and that a more generous treatment of tax credits on capital expenditure may attract greater R&D investment into the UK.
However, the report makes clear that it is the entirety of the tax system that matters and that keeping corporation tax low is vital for the UK to attract more investment because without it the manufacturing investment required to capitalise on the R&D investment may not be forthcoming.
The author of the report Philip Radford said:
“Reversing the planned increase in corporation tax would reduce the relative un-competitiveness of UK as a base for pharma manufacturing as compared to Ireland.
“The recent history of pharma industries in the US and the UK shows that in pharmaceuticals manufacturing, taxation is a key driver of investment. We should learn from the successes of our neighbours as well as the failures of our recent past.”
ENDS
Click here to read the report.