Labour scorned by its own party members over plans to scrap the ‘patent box’
In the midst of the most tumultuous political summer in living memory, and its own self-perpetuating destruction, the Labour Party has once again proven its lack of economic sense through Shadow Chancellor John McDonnell’s declaration of his plan to scrap the ‘patent box’.
The ‘patent box’ is a £1bn tax relief introduced by the then Labour government in 2009 to promote innovation and reduce the flight of hi-tech companies out of the UK. The ‘patent box’ was intended to boost profits from patented innovations and intellectual property by a cut in the rate of Corporation Tax to 10%.
The argument advanced by John McDonnell is that the ‘patent box’ only benefits large pharmaceutical corporations. In recent comments, the Labour leadership referred to it as a “potential tax loophole with limited impact on research”. The economist Marianna Mazzucato, who sits on British Labour Party’s Economic Advisory Committee, went so far as to condemn the ‘patent box’ as a “scam with no effects on innovation”. Her body of work and research has hitherto focused on Pharma, High Tech and Biotech, and has shown she has no love for the private sector or entrepreneurs.
Divided opinion ensures controversy
Such an outburst – apropos to absolutely nothing – has not been met with glowing approval in the world of business and wealth creation. We believe it is sixth-form, right-on partisan garbage of the worst kind.
- Firstly, the effectiveness of the ‘patent box’ has yet to be determined. The first release of government figures pertaining to the effect of the relief will occur on 14 September, 2016. It is therefore too early to judge whether it is having the desired effect.
- Secondly, and somewhat predictably in the context of the internecine conflict raging in his party, McDonnell’s solid Leninist-Marxist argument has not been well-received, even internally. A Labour MP who sits on the Treasury select committee, Helen Goodman, stated: “The value of the intellectual property is huge – the industry is worth £13bn a year in gross value added – and nationalising it would cost billions that could be put to better use on, for example, housing. We are already dealing with Brexit uncertainty and we shouldn’t be adding anymore.”
When we factor in that Owen Smith MP spent time as Head of Policy and Government Relations for Pfizer, John McDonnell’s true motives become apparent. He is spinning and slinging mud to help his best friend to help save the soul of the party.
Tax breaks drive investment and encourage innovation
Statutory reliefs such as the ‘patent box’ are welcome features of a legislative and fiscal landscape that seeks to encourage companies to not only remain innovative, but also to maintain their presence in the U.K. Many countries use tax reliefs to offer incentive and promote business in a variety of ways to bring jobs and inward investment to their countries. They constitute a legitimate strategy for enhancing and protecting national economies.
Smart use of tax reliefs are a fundamental part of any sensible business strategy
Tax reliefs are there to be used – they are not a scam or a loophole. Such an argument is intellectually lazy, doctrinally blinkered and dismissive of the real work where job and wealth creation go hand-in-hand. Further examples of statutory relief can be found in all corners of the UK tax code, such as Excise Duty, VAT, Research and Development and the Annual Investment Allowances.