1. In his first interview as Chancellor, Alistair Darling made the brave and welcome argument that taxation and regulation policy should undermine neither the competitiveness of the UK economy nor key parts of it, such as financial services. He raised concerns about following the regulatory changes implemented in New York; changes which, according to McKinsey & Company, have already undermined that market's global standing.1
2. Alistair Darling said:
■ "I'm reminded of Sarbanes-Oxley in the United Sates, where because of what happened in Enron, understandably people wanted to make sure that, 'it could never happen again' so Sarbanes-Oxley came along, and in the United States they're now wondering how they can get out of it, because there's no doubt it's damaged the US market. London's actually benefited because of that. But I think we need to be very clear that when, or if we make any changes, they're made at the proper time, in the context of the Budget, or the Pre-Budget report, and they're done in the context of making tax reform which is beneficial to this country.
■ "I think the other thing I would say in relation to private equity is that there are a number of examples where private equity has actually been beneficial in relation to the companies which have been taken over. I think we can't allow ourselves to get into the situation of somehow saying that all incorporated bodies under the Companies Act are good, or private equity is bad. That is just nonsense, the world isn't like that …. And I think that any changes you make to the tax system have got to be properly considered, properly thought out…" 2
3. Reform research has already stressed the importance of the financial services industry - of which private equity is a part - to both the UK economy and the most disadvantaged members of society.3 Mr. Darling's references to Sarbanes-Oxley - and his refusal to put political points-scoring on private equity ahead of the economy - indicates that the Treasury also understand this.
4. In the same interview, Mr Darling developed this pro-business attitude; expressing a commitment to simplifying the corporate tax system and decreasing the regulatory burden on business. These measures are consistent with Budget 2007, which abolished certain tax rates and decreased the headline corporate tax rate.
5. The pro-competition message has been repeated by other members of the Government, such as Jane Kennedy, the new Financial Secretary:
"The Government's review of the residence and domicile rules is ongoing. The Government is mindful that any change to the current system would need to balance carefully the principles of ensuring fairness and of promoting the UK's international competitiveness."4
6. And it recalls the rhetoric of Tony Blair as Prime Minister:
"We need to keep up with the economic challenge posed by a changing world …. We must maintain a tax competitive economy .... I promise we will continue to look with you at the business tax regime so that we provide incentives for investment in wealth creation and rewards for success - and make and keep the UK as the best place for international business."5
7. There are indications that Gordon Brown's government may provide a more favourable tax environment for individuals as well as for business. According to a recent newspaper article, the Treasury is to both cap the top rate of income tax at 40 per cent and rule out increases in National Insurance. The same article claims that - given these caps - future public spending commitments are to be paid for a "major" government efficiency drive.6 The conclusion to this report provides the evidence that the major recent efficiency drive as achieved very poor results.
8. The Treasury has also moved to increase the transparency of the Bank of England's Monetary Policy Committee (MPC). In future, positions on the MPC will be advertised and a job specification published.
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1 Office of the Mayor of New York / McKinsey & Company (2007), Sustaining New York's and the US' global financial services leadership.
2 Darling, A. (2007), Interview with the Financial Times, 3 July.
3 Bosanquet, N. et al (2007), UK growth and opportunity: the need for a fundamental reassessment, Reform.
4 Kennedy, J. (2007), Hansard, House of Commons, 12 July, col. 779-80.
5 Blair, T. (2004), Speech to Goldman Sachs, 22 March.
6 News of the World (2007), Brown to nail top tax, 22 July.