That's not actually true! Companies are usually taken over at a premium which ordinary shareholders will benefit from the same as other shareholders. (They may or may not support the acquisition but they do get a vote and will be treated the same as others.)
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What decisions could the UK actually take to avoid managed decline?
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The rift is increasingly between the UK Government and the EU more that between the EU and the public at wide.
brad465
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In a way such regulations already exist, as the Competition and Markets Authority does that, and they have intervened to stop certain company mergers where competition would suffer (such as stopping Sainsburys and ASDA merging).
In answer to the wider thread, I'd suggest the following:
- Ban foreign ownership of media outlets
- Implement Leveson Recommendations
- Teach Critical Thinking more widely in schools and workplaces
- Introduce different measures of success/wellbeing that are relied upon more than GDP, such as Genuine Progress Indicator and/or Human Development Index
- Introduce Proportional Representation into General Elections
- When it comes to fining people for certain crimes, link it to income rather than issue a fixed penalty, like in Finland and Switzerland
- Introduce some means of closing down UK tax havens
- Legalise, tax and regulate Cannabis
- Super tax property that is vacant for more than a set period per year that is enough to deter buying property for investment and/or money laundering purposes and in turn increase housing supply
- Nationalise any service/industry that is of strategic importance and/or cannot have a successful private model implemented (e.g. nationalise water rather than have geographical monopolies)
Among others.
The thing which needs to happen is to get more investment, one way to do that is to tax large profits.
However what consists a large profit being based on the number of full time equivalent staff a company has and how much investment that company has made.
Therefore if a company has 10 staff and makes £1bn in profit and invests nothing they would have a far higher tax rate than a company with 1,000 staff and had invested £250 million and still makes £1bn in profits.
This would mean that there's an incentive for companies to keep staff on as well as invest.
As if you're going to have to give up that money anyway who would you rather see it go to HRMC or your staff? Funnily enough most people would rather it go to staff.
Likewise it makes that investment in more efficient equipment a better option too.
With better staff pay or more staff being paid that will then boost the economy, whilst any investment would result in more efficient working (an area where it's said that the UK is lagging).
However what consists a large profit being based on the number of full time equivalent staff a company has and how much investment that company has made.
Therefore if a company has 10 staff and makes £1bn in profit and invests nothing they would have a far higher tax rate than a company with 1,000 staff and had invested £250 million and still makes £1bn in profits.
This would mean that there's an incentive for companies to keep staff on as well as invest.
As if you're going to have to give up that money anyway who would you rather see it go to HRMC or your staff? Funnily enough most people would rather it go to staff.
Likewise it makes that investment in more efficient equipment a better option too.
With better staff pay or more staff being paid that will then boost the economy, whilst any investment would result in more efficient working (an area where it's said that the UK is lagging).
Peter Sarf
Established Member
Sadly. The logic could be that it is better to pay HMRC this tax year with the profit you have than have to commit to HVAC and wages or redundancy in a future year.
Its all very well taxing a company in its boom year but then the state should perhaps be expected to prop up a good performer if it has a bad year. Also look how much support the state was prepared to give to "Volt" (or whatever that North Eastern car battery manufacturer was called). UK plc needs to be reasonably attractive to new business. State interference anybody ?.
DynamicSpirit
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You do realise that you're suggesting taxing money that can only be legally used either for investment in the company or to pay as dividends anyway? You're more likely to discourage rather than encourage investment by doing that.
Rather, if we want to encourage growth, we need to end this culture where everyone thinks of profits as being somehow a bad thing. Profits are not bad: They are - in general - what individuals and companies make as a reward for innovating and risking their capital to create businesses and provide jobs. The only situation where you could plausibly argue profits are bad is if they have been made either by abusing a monopoly situation or in as a result of some unethical/illegal activities - and that's a separate matter of applying other laws to try to prevent that.
It's good that you've recognised that a reasonable level of profit depends in some way on the size of the company (I've seen too many attempted tax solutions that don't even bother thinking about that). But, it's far more complicated than you imagine. For example...
Company A employs 100 sales people and 100 software developers and makes £50M profits.
Company B does the same thing and makes the same profits, but instead of employing 100 software developers, it contracts out its software development to a 3rd party which employs the 100 developers. So it creates the same number of jobs (200) but under your system would only count as having 100 staff. I assume therefore that, under your system, it would be taxed at a higher rate despite making the same contribution to the economy?
No doubt you could imagine some modification to your rule to take this particular problem into account, but then you're just starting to make the rules more complicated and heading back into over-regulation territory. The real lesson is that it's pretty much impossible to determine through regulations what a reasonable level of profits is. Best thing is to just do (roughly) what we do today: Tax profits at a single, simple, rate, and make sure that there's a reasonably free market - which is by far the best mechanism to control excessive profits.
Or, increasingly, for share buybacks.
coppercapped
Established Member
Yes, absolutely.
What people tend to forget that that the future is to a large extent defined by companies that do not exist today, developing and selling products and services which exist now only in the minds of those who will create them.
Back in the 1960s George Brown produced a National Plan, a copy of which may be found in the National Archives at https://www.nationalarchives.gov.uk/education/resources/sixties-britain/national-plan/ . Looking at the document and its analysis of the situation, it is depressing to find how little has changed... However in the sections concerning what changes need to be made there is no mention of the effect that future technologies, such as microprocessors, fibre-optics and software, would have on the economy. (Other examples are available).
In order to make it worthwhile for some people to spend their waking hours trying to develop and market something new they have to be rewarded - and rewarded well.
The biggest single change that can be made for the country to avoid managed decline is to admit that profits are not just a necessary evil, but are the very lifeblood in the creation of new products and services. Some people will become very rich - and they should be congratulated.
There is no mention in George Brown's document of the need to encourage the emergence in Britain of the likes of Bill Gates, the two Steves (Wozniak and Jobs), Robert Noyce, Gordon Moore, Morris Chang or Jeff Bezos without whom this forum could not exist.
It is impossible to create national success by management alone or by arguing about the distribution of existing income and wealth. It is necessary to applaud and reward success. Just as football enables a few to become very rich without calls for the clubs to be nationalised to ensure fair shares for all so should it be for business.
Profit is a drain on our collective wealth if it is expatriated, rather than reinvested or paid out here.
Of course it's good for countries to have their fingers in eachothers pies to an extent for the sake of international concorde, however if too much of the flow is in the wrong direction, then that is a problem.
Leaving that aside, if a way could be found of adopting a four day working week, without impacting wages or profitability, we would soon be rocketing up the quality of life rankings, if nothing else.
Of course it's good for countries to have their fingers in eachothers pies to an extent for the sake of international concorde, however if too much of the flow is in the wrong direction, then that is a problem.
Leaving that aside, if a way could be found of adopting a four day working week, without impacting wages or profitability, we would soon be rocketing up the quality of life rankings, if nothing else.
deltic
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I agree with most of these but not sure I see the benefit of the last. Politicians and civil servants are rarely the best people to oversee businesses. Scottish water companies are not known for their efficiency.
Neither are any of the others.
DynamicSpirit
Established Member
By the same reasoning, do you regard it as a drain on our collective wealth if someone chooses to spend their wages abroad (such as by going on holiday)? It is after all in essence the same thing.
deltic
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precisely so spending time changing ownership of them is not a worthwhile exercise
coppercapped
Established Member
You are Arthur Scargill and I claim my five pounds...
None of these points have any relevance to my post.
Well, it is (strictly speaking) but it's not too much of a problem if there are enough (or preferably slightly more) tourists coming here to off-set it.
Also, when people travel abroad, they usually derive a personal benefit from it enhancing wellbeing, which isn't the case when just the money emigrates.
== Doublepost prevention - post automatically merged: ==
I was more responding to @DynamicSpirit posting above, and even Arthur Scargill has more hair than me.
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deltic
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There aren't - UK has a massive tourism deficit which gets ignored when the economic benefits of airport expansion is raised. Every time we support increased regional airport capacity there is a net negative economic benefit to the UK.
That's a shame (particularly as there's so much to see here), but I think it's disingenuous for some posters to conflate the benefits that people get from visiting abroad, with the expatriation of company profits.
That said, there are also the various environmental disbenefits to airport expansion.
Is the deficit in terms of passenger numbers or tourist spend? A lot of Brits go overseas to cheap beach resorts in Spain whereas tourists visiting the UK tend to travel around the country more (and presumably spend more).
deltic
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Tourism spend - to make matters worse a very significant proportion of inbound tourism spend is in London making the regional deficits even worse. Look at most UK regional airports and the vast majority of users are Brits taking their spending power out of the country.
We take the many decades of census returns and birth marriage death registrations to create a measure and profile of the population, from the measure and profile of the population we calculate the infrastructure needs of the population, we then compare our existing infrastructure with the calculated infrastructure, we then devise and set about a cross-party supported programme of Works to rectify the chasm between the two.
That is the way we arrest our decline, by creating a bedrock of infrastructure to nurture a fair and just society which serves the population.
That is the way we arrest our decline, by creating a bedrock of infrastructure to nurture a fair and just society which serves the population.
That's probably off-set by domestically holidaying Brits choosing the more remote, picturesque locations.
HSTEd
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The only way to capture meaningful additional tourism income into the UK would be to spend huge amounts of money on transport links to reduce the difficulty of going to the most desirable tourist areas in the UK.
But I doubt people (other than me) would back a high speed railway to Cornwall or to a high speed line to Fort William combined with a massive snowsports development on the Ben Nevis massif (or a high speed line to Aviemore and a huge development there).
But I doubt people (other than me) would back a high speed railway to Cornwall or to a high speed line to Fort William combined with a massive snowsports development on the Ben Nevis massif (or a high speed line to Aviemore and a huge development there).
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I dunno. Try walking through Edinburgh in the summer, nothing but Americans, Canadians and Chinese as far as the eye can see.
HSTEd
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Yes, but we've already got those - I'm skeptical much more at all can be done to capture more.
If there's a choice to pay those taxes rather than invest or pay staff more then that still results in a benefit to the country due to note taxes paid.
Profits aren't bad, they are needed, however there should be a procedure to ensure that companies don't over do it (for example it's reasonable that Shell made profits, but it's our reasonable that they made the level of profits that they did).
If you don't think such a policy would work then the Norwegian government have had it won't for decades with this oil and gas tax system.
It does depend on how you set the value.
For example if the result is (say) 30% tax rate for that company with 100 staff and 20% for the company with 200 (based on profits in millions divided by number of staff to give a ratio which is applied to a value of 40 and then added to 10 to give the tax rate, so 50/100= 0.5, 0.5*40= 20, 20+10 is 30% tax rate) then the "value" in reduced tax for the employing 10 extra staff is very nearly £91,000 for each member of staff.
As such it's worth employing that extra 10 staff, as even them costing you £46,000 you'll be able to keep an average of a further £45,000 for each one you've employed. Even if they generate zero extra income (which if they are sales based staff is highly unlikely)
However for the company employing 200, the benefit of employing 10 more staff is only about £24,000, so you would need them to bring in much more of their salary to make it worth employing them, however it still could be worth a punt on taking on a few extra sales staff to see if they can cover enough to justify the extra profits which are retained.
To take it a step further a company with 300 staff with profits of £50 million the extra is just shy of £11,000 each for an extra 10 staff, so those staff would need to earn almost their entire pay to justify their job but as long as they do there's still an advantage in having them.
Of course the issue with the 100 contracted coders is that one the design is set there's little incentive to keep paying them until you want to launch a new version, by which point they may have moved on and so you need to get a new lot up to speed.
Whilst the company with them employed benefit from about £50,000 for each of the 100 kept on the books compared to the above company. Whilst not quite enough to justify keeping them full time, could be enough to allow you to look at developing other products or providing incremental increases to your existing products (useful if you are looking at a subscription model).
If you do look at other products then that's the sort of innovation which is likely to boost the economy. Now because they don't necessarily have to be fully commercially viable (as you may use them for a small upselling on your main product) as most of the development costs are covered by reduced tax payments, you can afford for that to happen. However it could mean that, say, you have a product which is allows other companies to work more efficiently and so boosts the countries productivity.
However it could well be that by being given time to work on non core tasks the programmers do develop something which is your next new product, or which makes your product the industry standard because it can do something no one else's can.
I'd be up for a high speed line to Cornwall,
Peter Sarf
Established Member
If company A persists in making huge profits then company B (C,D etc) will come along and undercut them.
Also if a company gives their profit as a big dividend to shareholders then we have to respect that those shareholders might have gone without a dividend for many years. Who is going to invest in a company if there is little chance of getting something in return. Effectively a company is borrowing money by giving shares. No one will lend them that money by buying shares if they fear there is no chance of a dividend.
I'm not sure why we would need a ridiculously complicated tax system like that. Expenses like employee pay come out before profit is calculated, so if a company wants to pay its staff well then there won't be as much profit to tax. As those taxes are generally higher than corporation tax, then we benefit as a country. The Chancellor is already bumping up the corporation tax rate, so there will be less for the shareholders.
WRT Shell, bear in mind that only 5% of their activity is in the UK. So most of their record profits have occurred in other countries and they'll be taxed by those countries.
We already have a special taxation regime for oil and gas, where they paid taxes at a higher rate than other corporations for operations in the North Sea. It's not unlike the Norwegian system, though their rate is a bit higher. Both allow investment and decommissioning costs to be set against profits. It's also pretty standard to be able to set losses in bad years against the profits in the good years. They may have made a $40bn profit last year, but you only have to go back to 2020 to see them making a $25bn loss.
WRT Shell, bear in mind that only 5% of their activity is in the UK. So most of their record profits have occurred in other countries and they'll be taxed by those countries.
We already have a special taxation regime for oil and gas, where they paid taxes at a higher rate than other corporations for operations in the North Sea. It's not unlike the Norwegian system, though their rate is a bit higher. Both allow investment and decommissioning costs to be set against profits. It's also pretty standard to be able to set losses in bad years against the profits in the good years. They may have made a $40bn profit last year, but you only have to go back to 2020 to see them making a $25bn loss.
Profits will only flow overseas if an overseas entity has made an investment in a UK company.
I work for an American company. It employs several thousand people in the UK. We earn decent wages on which we pay income tax and we spend that money mostly in the UK. The company pays UK corporation tax on local profits, VAT, business rates, NICs etc. We even do our bit for the balance of payments by selling to overseas clients!
The ultimate profits do flow to shareholders in the American parent of course but surely they are a fair reward for its investment in the UK? And some of those shares are owned by UK pension funds and insurance companies. And UK employees can buy those shares via HMRC-approved tax efficient share purchase plans.
That's not what I'd call a drain....
Fair point. But how do we stop you doing a Cadbury and going back on your word and relocating your jobs to Switzerland. Foreign ownership reduces us to a province.
That aside, we have the situation where companies linked to Communist governments are being allowed to buy British companies willy-nilly. Do you find that acceptable ?
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In my field, this country is world-leading - just today I helped clients from Singapore in the East to California in the West. To stay ahead, we need a well educated workforce, we need a stable and predictable set of laws and we need taxes that are stable and not excessive relative to the rest of Europe. Switzerland isn't the risk (too expensive, too dull, short of workers) but some jobs are being offshored to Poland and India.
Being a "province" isn't always bad - a UK element of a world-class company that's American, German, Japanese or whatever may be better than a second-rate British company. And in some industries (mine included) you need to be global.
I agree that there can be issues around certain types of foreign owner. Personally, I wouldn't allow a CCP-affiliated entity anywhere near UK infrastructure, for example.
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