Insurance companies in the UK are facing increasing pressure to move their business bases overseas to avoid the heavy rate of Corporation tax levied in this country. With the credit crunch influencing their profits, many are seeing moving as a way of keeping their shareholders happy.
Despite pressure from business’ lobbying groups, Labour’s Chancellor Alastair Darling has stood firm on the taxation issue, which states that British Companies must make concessions on foreign earnings. With insurance companies now relying on their overseas income, this is causing huge taxation bills. Added to this is the flat rate of capital gains tax and a levy on non-domiciled workers.
The treasury does not want to give up the sizeable income from the current policy, but with companies now moving to foreign shores it seems that they may well lose that income anyway. It has been suggested that a cut from the current 28% to 20% would allow UK firms to stay in this country, reducing the current exodus of taxation income.
The treasury has stated that the current rate of 28% is in fact, the lowest in the G7 group of industrialised nations.
The Prudential and Royal Sun Alliance (RSA) Insurance are both under serious consideration for moving. The Prudential is considering a move to Dublin or Amsterdam whilst RSA, which derives 60% of it’s premiums from outside of the UK, has been looking at moving to Ireland which has more favourable taxation laws.
Fears for the 1800 jobs at RSAs Liverpool base if a move to Dublin as it’s new headquarters is confirmed, are unfounded as it is believed that if they did decide to move, it would simply involve re-registering the company in Dublin not relocating the headquarters.
RSA’s Andy Haste says the company could save 50m by making this move, which represents 10% of their annual profits. Who wouldnt leave the UK with that incentive?
Brit Insurance has this month announced their intention to move their headquarters from the UK to the Netherlands. After suffering a drop in profits of 53% in the last year they state they have had to make some very difficult decisions which includes the move. Dane Douetil, chief executive, said that the constant changes surrounding taxation were causing instability in the industry.
In response, Shadow Chancellor, George Osborne has indicated a 3% decrease in corporation tax, making the UK more competitive internationally. He suggests that this rate would continue to fall should they succeed Labour into power. The reduction would be achieved by firms getting less tax relief on the money they borrow.
It is clear that the issue of corporation tax will not be an easy one to settle. With so many companies thinking of moving to sunnier tax climates, the Government needs to make life in the UK easier for companies and offer the right kinds of incentives to allow them to stay.
“Taxing the rich” is always popular with voters, but the fact that the rich — companies or individuals — can and will simply move their money out of the UK altogether makes overtaxing them a poor economical choice.*
*NoClaimsDiscount.co.uk has no employees that are rich!