What’s in a name? Subtly, over the last couple of weeks, the idea of Singapore-on-Thames has almost imperceptibly become Singapore of Europe. What’s all this about?
The notion that the UK financial services sector generally, and the City of London more specifically, should somehow become a Singapore-on-Thames, with light-touch regulation and low taxes to encourage both financial services and inbound investment, seems to have been quietly ditched. While the financial sector might welcome some relaxation in regulation, the last thing they want is to lose broad equivalence with EU and global regulations which enable them to retain market access.
While the proposal that the UK should become a low-regulation, low-tax jurisdiction has been in the background for several years, to reactivate it now when British businesses are coping with, according to HMRC’s estimate, £7 billion worth of extra red tape following the end of the Brexit transition period, seems singularly ill-timed. Instead of the Government talking up a ‘Singapore-style attraction’ many businesses argue that the Government should instead focus on closing the missing areas of the Trade and Co-operation Agreement, namely obtaining passporting and equivalence to the UK financial services sector into the EU. That would drive far more foreign direct investment into the UK economy.
As if that wasn’t enough, the idea that financial institutions in the City of London – Singapore-on-Thames – and elsewhere might somehow enjoy a more favourable tax regime than other UK businesses caused horror among those keen to see the Government pursue the levelling-up agenda. Quietly and rather quickly Singapore-on-Thames seems to have disappeared from the political map, to be replaced by the idea that the whole of the UK should somehow become the Singapore of Europe.
What might that mean for taxes?
Starting with corporation tax, the UK rate is currently 19%. That compares with 17 per cent in Singapore. The similarity between the tax rates masks a very public difference of opinion between Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak. While the PM has come out in favour of an even lower tax rate for business, the Chancellor is sceptical that the current low rate is effective in attracting investment to the UK and seems likely to raise the corporation tax rate in his March Budget.
The Social Security rate for companies in Singapore is 17% and for employees 20 per cent. That makes a maximum total of 37 per cent. Although the bands and limits are different from the UK, the Singapore total compares unfavourably with the UK’s maximum combined rate of 25.8 per cent.
Property tax is a factor to be reckoned with in Singapore where it replaces both council tax and business rates levied in the UK. The top rate of Singapore property tax paid by owner-occupiers is 16 per cent, with non-owner occupiers paying from 10-20 per cent. For commercial and industrial buildings, the tax rate is 10 per cent.
When it comes to personal income taxes, rates in the UK range up to 45 per cent. By comparison, the top rate in Singapore, charged on incomes in excess of approximately £175,000, is 22 per cent. There is no capital gains tax in Singapore. The rate of goods and services tax (GST) is currently 7 per cent.
Attempting to make a balanced summary between two sophisticated jurisdictions is difficult, especially as the UK has significant differences in aspects of its legal and tax systems across the devolved nations. Nevertheless, at its simplest, it’s clear that a Singapore-style tax system in the UK would make comparatively little difference to companies but could be of great benefit to high-earners.
The final choice for the UK is very much in Rishi Sunak’s hands. On the regulatory side, he has been tasked by the Prime Minister with leading a Whitehall-wide review to identify regulations which can be reformed. On taxation, he seems to be a realist. Expectation management from the Treasury in discussions about the fiscal content of the 3 March Budget points towards corporate and other tax increases sooner rather than later. Meanwhile nobody seems to be talking about halving income taxes for the higher paid, to align the UK with the Singapore model.