We need to capitalise on America’s overly hostile business environment

Hillary Clinton, now the most likely victor, has tacked to the left, proposing exit taxes for companies looking to relocate. Donald Trump has made a few noises about cutting corporate taxes, but his bizarre mix of nationalism and protectionism will only scare multi-nationals even more. The flow of corporate refugees is increasing all the time, and could soon turn into a flood. 

This is surely a huge opportunity for the UK. So far, of the companies that are leaving the US, we have attracted relatively few. As the other big English-speaking, common law economy, we ought to be the natural destination for American multi-nationals seeking a friendlier home – and with only a few changes to policy, we could be. Forget the tortured debate on whether or not we remain a member of the European Union, which is an irrelevance to where most companies base themselves, if we could tempt more American giants to this country it would be a huge boost to our competitiveness.

Amid all the over-hyped discussion of Brexit, there is actually a far more powerful force at work, and one that will have a far bigger impact on the global economy. The painfully uncompetitive American tax system is starting to trigger a steady exodus of companies. It is not hard to understand why. In the US, the corporate tax rate is 35pc, and state taxes levied on top of that mean it is often closer to 40pc.  It gets worse. It can take American companies almost four decades to deduct capital costs from profits, and they are taxed on worldwide earnings, rather than just what they make in the US.

While the rest of the world has steadily cut corporate rates, America has left them where they are. The result? It has become wildly out of line. The UK's tax rate is coming down to 18pc, almost half what US companies pay. Even the French rate is lower than the American one. Globally, only the United Arab Emirates, at 55pc, and Chad, at 40pc, now levy more. 

True, there are all sorts of loopholes and exemptions which mean the effective rate is slightly lower – although you have to remember that only big companies can usually take advantage of those.

Even so, a World Bank study found the “effective rate” for the US was the second highest in the OECD, behind New Zealand, and the 15th highest of the 189 nations it studied. By any reasonable measure, the US is now a very high-tax country.

In a globalised, networked economy, that is starting to matter. Companies can base themselves pretty much anywhere, and while they will take a range of factors into account, they need a very good reason to pay double what they need to in corporate taxes. Since 2012, 22 major companies have left the US for tax reasons, including big names such as Mylan and Liberty Global. (As it happens, the number of individuals renouncing US citizenship for tax reasons has also hit record levels, and is growing by 20pc a year, but that is another story.)

The fix for that is, of course, very simple. Reduce tax rates to globally competitive levels. Unfortunately, not many American politicians can see that. Hillary Clinton, the most likely next President, and a woman who would micro-manage the economy out of existence, has proposed punitive “exit” taxes on companies. As she gets closer to the White House, expect a stampede of companies getting out while they still can.

Donald Trump has made a few noises about cutting corporate taxes, but his toxic mix of protectionism and nationalism is not likely to be a solution.

One brave congressman, Tom Emmer, has proposed a law that would automatically set the rate five points below the OECD average. But a law banning baseball probably has more chance of passing.

Right now, American politicians show zero interest in fixing the problem. But, hey, that is their loss – and everyone else’s opportunity. Where are all those companies going? According to a Bloomberg analysis, of exits since 1982, 18 went to Ireland, 18 to Bermuda, eight to the UK, seven to the Netherlands and six each to Canada and the Cayman Islands, with the rest spread around the world. Surely the UK should be doing a lot better than that? In fact, Britain should be the most natural home for American tax refugees. This is the second-largest English-speaking economy in the world, we have a very similar legal system, we are politically stable, and we offer all the services a multi-national needs.

So what should we be doing to attract those companies? Here are three places we could start:

First, we should aggressively court American companies. It may be our oldest ally – but it is also an economic competitor. In the 1980s, we made a big play for the Japanese to come here, and a lot of them did. In the last decade, we attracted a lot of the Russian billionaires, and many of their resources companies as well. If you roll out the red carpet, and make American companies feel welcome, a lot more will cross the Atlantic. British trade missions in the US should tout our advantages as a corporate base.

Second, why not match Ireland’s 12.5pc corporate tax rate, at least in part? We are already planning a 12.5pc rate for Northern Ireland,  so it can be competitive with the Republic. Why not extend that to Wales and the North East, both places that could use the subsequent increase in jobs? Finally, stop hounding companies for paying too little tax. Sure, perhaps the likes of Amazon and Google should pay more. But keep making the point that it is income tax, VAT and National Insurance that raise the big money – and the UK will be a lot better off with lower corporate rates, and a lot more high-paying jobs.

The US has the biggest stock of successful global companies. If we could tempt a few more to the UK, it would make a huge difference to our economy.