Article

UK should adopt Trump-style border tax, says former chancellor Lord Lawson


Added on 01/03/2017

The controversial border tax Donald Trump says will pay for his wall with Mexico is such a good idea that Britain should consider adopting something similar, according to one of the UK's most famous reforming chancellors, reports Sky News. 

Lord Lawson has told Sky News the UK should abolish corporation tax and replace it with a business tax that resembles the one the new US president is now considering.

It would amount to the most radical reform of business taxation since the 1920s.

His comments come as the Republicans push the president to adopt their proposals for what is known as a destination-based cash-flow tax - a plan that would turn the system of business tax on its head.

Under today's tax system, businesses are taxed on the basis of where goods are produced; under the Republican proposal, they would be taxed based on where those goods are sold.

There would also be a so-called border adjustment in which all imports have to pay a tax - the "border tax" Mr Trump has referred to.

While the idea is being pushed hardest in the US, it was actually originally invented by an Oxford academic.

Professor Michael Devereux dreamed up the tax in the train from London to Oxford back at the turn of the millennium.

His ideas have since been taken up by American economist Alan Auerbach, who has been involved with designing the Republican plan.

Professor Devereux said the tax would work just as well in the UK as the US, helping cut down on tax avoidance by multinationals, which often shift profits around the world towards the low tax jurisdictions such as Luxembourg or Ireland.

"There's been lots of competition to attract inward investment by lots of countries," said Professor Devereux.

"And that's because we tax economic activity where that economic activity takes place, where the production is.

"What this proposal would do would be to essentially set that tax rate to zero, and replace it with a tax on where sales are.

"And that would make the US a very much more attractive place to do business.

"The same thing could easily be applied here if the UK decided to - again - set its tax rate on production to zero and move instead to a tax rate where we're taxing multinationals' profits in the place of consumption and sales. That would be a big boost to the UK economy."

He added: "The disadvantages from leaving the EU could at least to some extent be offset by this kind of fundamental change in the tax system."

Lord Lawson, who abolished numerous taxes during his time as chancellor, said that corporation tax was "past its sell-by date".

"The scale of avoidance is massive. There's no reason why we shouldn't do it ourselves and be a pioneer. There's no reason for the US to lead."

There is still much speculation in the US about whether Mr Trump is convinced by the overall tax plan or whether he has simply seized on the border tax, which is one element of it.

 

However, economists believe that were the US to implement the tax, it would see a big increase in investment as companies moved their factories to America, where they would pay zero tax.