Some as yet unspecified EU member states are now saying that zero-ten – which applies a zero rate of corporate taxation and a special ten per cent rate for finance businesses -– does not meet the ‘spirit’ of the code. Implicitly, these countries are telling us to go back to the drawing board. In addition, the UK has made it clear that it has no intention of fighting our corner. It will not take on EU dissenters on our behalf.
If all this sounds like a set of obscure and perhaps irrelevant technicalities, it is no such thing. The government has put very nearly all our economic eggs in the zero-ten basket and there now appears to be a massive hole in the bottom, towards which those precious eggs are rolling.
Given that the pace at which EU issues generally unfold, there will no doubt be time to take a long hard look at the predicament that we and the other Crown Dependencies now find ourselves in. The zero-ten problem, however, is not going to go away – unless, that is, the critical EU states begin to see matters very differently and abruptly withdraw their present objections.
Even in the face of a period of doubt about exactly what is likely to happen next, the Council of Ministers and their advisers will have no choice but to begin working out how zero-ten can, if necessary, be abandoned in favour of a new, fully watertight and economically sound tax régime acceptable to the EU and, of course, the UK.
Comforting noises about the merits of negotiating directly with the EU rather than through the agency of the UK are being made, but, even if this does represent an advantage, it is a marginal matter. Like it or not, the overwhelmingly serious issue is the massive and deeply troubling question mark now hovering over the whole of our fiscal strategy.
The answer to this setback is not going to be found in a day, a week or a month. What is required is a calm, measured and carefully considered response from politicians and those who help them to frame tax policy. In addition, this is a time for parallel calm and parallel patience in the ranks of the finance industry, many of whose professionals will know full well that there is more than one way of skinning the taxation cat.
