Taxes, grants, and photo-opportunities

Tweet Yesterday’s Western Mail carried this story about the Ford engine plant in Bridgend.  The company received a £12 million grant from the Welsh Government a little under two years ago, and is now seeking a further £15 million in aid, with the implied suggestion that it may yet decide to build its new engine elsewhere.  Part of the justification for seeking further aid is that the company’s Europe, Middle East and Africa region is expected to report an annual loss of around $1.2 billion when results are published on Thursday, although globally the company is expected to show an overall pre-tax profit of $6 billion (around £4 billion).

I’m not in a position to know whether, or to what extent, the company does its intergroup accounting in such a way as to ensure that profits end up in the places where the tax bills is lowest, and losses in the places where state aid is easiest to come by.  Perhaps they don’t, although they’d be something of an exception amongst the big multinationals if they did not endeavour to optimise their advantages from international differences in approach.

I also don’t know whether the Labour Government in Cardiff will accede to the request for another £15 million.  I’d be surprised, though, if they rejected the request out of hand given the potential consequences.  It’s easier to claim credit for ‘saving’ jobs than it is to risk those jobs.  And although the government happens to be Labour, it doesn’t seem likely that any of the opposition parties would put their heads above the parapet to query the wisdom of paying £15 million to a company which is making a £4 billion annual profit, for similar reasons.

By curious coincidence, the same edition of the paper contained a letter from a Labour Councillor in Blackwood, Nigel Dix.  (Scroll down here.)  He attacks the Tories, Plaid, UKIP, and the SNP for proposals to reduce corporation tax.  Leaving aside the rather pathetic attempt to brand all four parties with the same brush as “parties of the right” seeking to “transfer wealth to the rich”, his argument is that a reduction in tax will “simply result in multi-national companies contributing even less than they currently do”.  That point is a valid one to make as a description of the overall global result, although it skips over the fact that a transfer of taxable profit to a lower tax regime might actually lead to a higher tax take for an individual exchequer.

But what, ultimately, is the fundamental difference between a tax cut (bad) and a grant (good)?  They are both ways of giving money to companies in essence.  There are arguments for and against both; each has its advantages and disadvantages, but either way there is an effective transfer of funds from the taxpayer to the private company.

Personally, I’m a little agnostic on the question of corporation tax reductions for companies.  I don’t really see it as a question of it being right-wing or left wing; that depends on the accompanying policies.  In isolation, then certainly it is, like a cash grant, simply a rebalancing of finance between the public purse and the private purse in a way which is damaging to the public purse.  But if accompanied by measures to prevent the use of clever accountancy tricks to shift the profit from where it is made, and to properly tax any money taken out of companies in high salaries and dividends, then allowing companies to retain more of their profits with little option but to reinvest them could be an engine for job creation.

I suspect though that Labour will continue to cling to a regime of higher tax and then give the money out in grants.  The photo-ops for ministers are much better that way.