New inward investment played a major role in the recovery
from the last recession in the early 1990s. The jobs created by Japanese,
Korean and Taiwanese investors have underpinned the UK’s manufacturing base
ever since. The reasons they chose the UK then were because of our low tax, deregulation
and open markets that provided a bridge into Europe. When the next recovery
comes, will foreign companies make the same choice? Maybe not. The landscape is very
different now and the world has changed.
Tax regimes are just one of many factors involved in inward
investment decisions, but as companies look to the future with ever-tighter belts,
there has to be some very compelling business reasons for companies to locate
new projects in countries with higher taxes.
The always-illuminating Forbes Tax Misery Index 2009 shows the tenuous nature of inward investment marketing which still refers
to the UK as “low tax” (see most UK Trade & Investment brochures). The 2009
index was published in February, a few months before the UK’s new 50%-plus tax rate was announced. If these new rates are factored in, the picture looks even bleaker than before, with a total of 20 European states having more attractive tax regimes
than the UK.
Competition for footloose inward investment projects was always going to be tough. Alistair Darling has just made the job even tougher.
