WHEN the top names unite, you know something’s afoot. That was the case at 10 Downing Street recently when some of the biggest companies in British — indeed world — business confronted Gordon Brown and Alistair Darling.

The main subject of discussion was tax. Not the 10p tax row that contributed so much to Labour’s poor showing in last week’s local elections, but an arcane issue that has turned into business dynamite. Treasury proposals on the taxation of foreign dividends, a subject guaranteed to send most to sleep, had suddenly become a Labour nightmare.

The bosses told Brown and Darling that the ramifications of the proposals, first set out in a discussion document last year, were worrying. They could spread the taxman’s net much wider than before, bringing into his clutches income earned from brands, patents, designs and other intellectual property held overseas. This, they said, was not right, and what was more, they would vote with their feet if it went ahead. One chief executive I spoke to last week, who was not at the meeting but had been briefed on what took place, said: “We’ll be off, probably to Ireland.”

A multinational shifting its tax domicile out of the UK sounds trivial. It isn’t. If you move to Ireland, for example, you have to hold your board meetings there. Eventually it becomes easier to have your entire headquarters staff in Dublin. Your British HQ, which directly employed say 200 highly paid and skilled workers, and indirectly a legion of others — from bankers and lawyers to cleaners and drivers — atrophies and eventually closes. The taxman has won his intellectual battle and closed what he sees as a loophole, and the country as a whole is poorer.

It is hard not to have some sympathy with the Treasury, Brown and Darling. Coming up with a rigorous tax law for multinationals is a thankless task. Their lawyers and accountants are invariably smarter than yours, and can jump to rival countries happy to welcome them with open arms and low tax rates should they choose to quit the UK.

In this instance, though, Brown and Darling need to think again. The chancellor’s announcement on Monday that there will be a task force to review corporate taxation indicates this is already in train. The pair can thank their lucky stars, and their civil servants, that unlike with their previous tax debacles they decided to consult rather than introduce the new measures without warning.

All clear, Clare?

THOSE with long memories will remember that at the height of the last property crash in 1991, Sir Lawrie Barratt retook executive control of Barratt, the housebuilder he had founded, when it ran into financial difficulties. He nursed it back to health and since then the sector has enjoyed virtually uninterrupted growth — until now. Barratt is again in trouble, largely due to an ill-timed acquisition by its new chief executive, Mark Clare. The company, which has seen its market value slump to £935m, now faces debts of £1.7 billion, costing at least £100m a year to service.

Clare paid the thick end of £2.2 billion last year for Wilson Bowden, yet again proving that veteran builders like David Wilson have a much better understanding of property cycles than a hired hand like Clare, in his first chief executive role after being lured from Centrica.

It is little surprise the market is spooked that a rights issue at Barratt is imminent. In the past year its share price has slumped from £11.26 to 269Äp. Falling house sales have hit cash flow hard. A cash call is by no means certain, though. This point will be clearer when Clare reports the group’s interim management statement on May 14. His first option is to turn off the tap for new land acquisitions which are running at some £100m a month and slow the building programme.

Barratt builds about 17,000 homes a year and already sits on a five-year land bank. Reducing land acquisitions will allow it to service and reduce group debt. It could even pay its full-year dividend. Out of all the housebuilders, Barratt and Taylor Wimpey are in the worst spot, but we are still not in a market like we saw in the 1990s. Barratt, which has to refinance its first £700m next April, can, for the time being, defer a need to raise cash. Clare has learnt the first rule of housebuilding: there is a time to buy and sell — and if you are on the wrong side it hurts.

A harsh lesson

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