George Osborne’s autumn statement: a bit of carrot, but not very much stick

The chancellor is having to shower gifts in a desperate attempt to generate confidence in boardrooms

A mix of carrot and stick is the gist of the chancellor’s approach to business. At first glance, the latest carrots looked juicy. There was the surprise further cut in the rate of corporation tax to 21% from 2014; the cancellation of January’s planned rise in fuel duty; and the tenfold temporary increase to £250,000 in investment allowances for spending on plants and machinery.

Think of the last measure as an inducement to timid companies to spend rainy-day cash that is supposedly sitting idle on balance sheets. It might work for some SMEs – the Treasury calculated the measure will cost about £2bn over three years. But throwing such sums around underlines quite how reluctant companies have been to invest in a flat economy where growth forecasts are constantly downgraded. The chancellor is having to shower gifts in a desperate attempt to generate confidence in boardrooms.

George Osborne used to preach simplification in corporate taxation; micro-management via sudden swings in capital allowances was not meant to be his game. His U-turn is because business investment is so weak.

What about the stick? It was there, but one suspects the smack will barely register. The scene had been set for a clampdown on aggressive tax manoeuvres by multinationals. That didn’t happen. The likes of Google, Amazon and Starbucks – accused of pushing rules to the limit, albeit completely legally – will not be cowering in terror.

An extra 2,500 inspectors will be recruited at a cost of £77m to combat aggressive tax avoidance but most of their time will probably be taken up by rich individuals with offshore set-ups.

True, closer examination of the pricing arrangements between subsidiaries – so-called transfer pricing – is being promoted up HM Revenue & Customs’ agenda. But any strong reform awaits international agreement. Work will be “taken forward” with the Organisation for Economic Co-operation to prevent artificial transfers to tax havens, said Osborne. Don’t expect a revolution.

A new anti-abuse rule will be unveiled next week for any scheme that looks too contrived and artificial. But many companies will not feel as embarrassed as Starbucks UK, now scrambling for a deal on corporation tax after unfavourable publicity.

Buried on page 72 of Wednesday’s document was news that the Cabinet Office and HMRC will consult on procurement contracts to deter tax avoidance and evasion. So aggressive tax avoiders could be barred from government work. “These proposals may result in a more formal certification process for all organisations involved with government entities,” thinks KPMG. It sounds like a sensible measure – but only if it happens. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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