It hasn’t been a good couple of weeks for those who predicted the City would be turned into a wasteland if we left the EU. First Brussels decided that clearing of trades, a key piece of the plumbing of the financial system, can carry on in London for euro-denominated assets, even though a succession of European leaders vowed that it would have to move to financial centres on the continent. Now companies are shifting to a sole listing in London as well.
There were lots of warnings that dual-listed companies such as Unilever and Shell would ditch their British arms and choose to be headquartered inside the single market instead. And yet first Unilever, admittedly under pressure from its shareholders, and now Shell, the two great Anglo-Dutch corporate giants, have decided to consolidate in London instead. Shell is even dropping the Royal Dutch from its name.
The City should blow its own trumpet
There is, of course, a lot more to Shell’s decision than just Brexit. It is much more about simplifying its ownership structure so that it can increase payouts to shareholders. The oil giant is under intense pressure from the activist investor Daniel Loeb to split itself up into a legacy fossil-fuel business and a faster-growing renewables unit, and the only way it can resist that is to get its share price moving back up again. By shifting its tax residency to Britain it will be easier for it to buy back its shares, improve returns and maintain independence. The important point for the UK, and even more for the City, however, is that Unilever and Shell are both huge companies and the bragging rights over their decision to base themselves in Britain are worth having. The City should capitalise on this and work out how to attract yet more multinationals.
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First, it could promote itself better. The City should be making a big deal of the fact that two of the biggest companies in the world, faced with a choice between basing themselves in London or Amsterdam, have chosen the British capital. A one-line statement from the business secretary is not really enough. The City should be shouting about it, so that the rest of the world gets the message. That’s what the French and the Dutch would be doing.
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Next, ensure our tax structures make it simple to base a multinational in the UK, and, perhaps more importantly, make sure they are flexible. The Dutch have been scrambling around this week trying to streamline the tax on buybacks that helped persuade Shell to shift its base, but it would have been better if it had made that change in advance. There is no harm in the UK tweaking its tax code from time to time if it helps convince some of the biggest companies in the world to move here.
Finally, offer a five-year tax break for any company moving a listing to the UK. The planned rise in corporation tax to 25% already looks like a big mistake, but even if that is not reversed there is no reason why there could not be an exemption for major firms that decided to switch their domicile to Britain. It would cost the Treasury some revenues; but it would also attract new businesses and their staff would pay plenty of tax. The UK would come out ahead – even before adding the value of the prestige that comes from hosting giant corporations.
Let’s open our arms to American giants
Plenty of the mining conglomerates also have dual listings as do some of the tech companies. More importantly, there are lots of firms that will be pondering shifting their main base over the next few years. Ireland will have to raise its corporate taxes to meet the global minimum rate it has signed up to and that will make it a lot less attractive as a base.
US president Joe Biden has already raised corporation taxes, and has had a go at a billionaire’s tax that could drive many American giants out of the country. The EU is increasing the levels of regulation and needs to come up with new taxes to pay for all its debts.
As the decade unfolds, lots of major businesses may be looking for a more business-friendly place to base themselves in. The UK needs to lure them in.
