Treasury considers shifting tax burden for mid-sized companies

Move could lower avoidance rates if done well.

The Telegraph's Roland Gribben reports:

Two key proposals designed to simplify taxation of their businesses and shareholders by replacing the current set-up with a single layer and align tax treatment with commercial reality have been submitted to the Treasury.

One involves giving medium-sized companies the opportunity to elect to be taxed as if they were partnerships or sole proprietors to produce a single tax level for business profits.

The second would extend the real estate investment trust regime to include all privately owned businesses, freeing them of corporation tax but paying taxable dividends to shareholders.

It's a scary experience, pre-empting the treasury. As I wrote last month, such a move could be remarkably effective at tackling tax avoidance. It is a lot harder for individuals to avoid tax than it is for businesses to, if for no other reason than that individuals have an actual corporeal existence and find it significantly harder to be "headquartered" in a country they've never actually been to.

The Telegraph quotes the senior tax partner of the consultancy which drew up the reforms as suggesting that the changes as described would not reduce the tax take. That seems doubtful – especially the former suggestion, since allowing companies to elect to change their taxation rate all-but-guarantees that the only companies which take up the offer are those which would lower their taxable income by doing so. Realistically, such a move would have to be combined with an increase in the dividend tax rate to keep the tax take level. That increase would then probably require an increase in the marginal tax rate – at least at the top –  to retain the incentives to investment in the current tax system… which means that it's a policy move which no politician would touch with a ten-foot pole.

Still, we can but dream. If the Treasury does take up the policy, expect it to focus more on the "making companies pay less tax" aspect of it, which is far more in line with previous moves.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.