A competitive tax regime – frankly who wouldn’t want one? The UK government said two years ago that it wished to create the most competitive corporate tax regime among the Group of 20 largest economies. In yesterday’s Budget it took another step in that direction, announcing that the headline rate of corporation tax would fall to 22 per cent by 2014, from 24 per cent in April. So companies that pay their taxes in the UK have reason to cheer. But as with a lot of things fiscal, appearances can be deceptive.

True, the headline rate of tax is an important number – it is arguably the hinge around which companies consider tax minimisation measures. The UK’s headline rate is already lower than those of similar economies such as Germany and France, and is much lower than either the US or Japan, where the corporate tax rate is around 40 per cent. But three things need to be borne in mind.

First, the UK offers fewer allowances to companies than other G20 countries on investment in fixed assets such as plant and machinery and industrial buildings. This hits the manufacturing sector above all. If the government wants to rebalance the UK economy away from financial services, this needs to be addressed. Second, the lower headline rate of tax benefits a relatively narrow group of very large companies. According to the Centre for Business Taxation at Oxford university, 80 per cent of UK corporation tax is paid by 1 per cent of companies – very large companies and multinationals.