Politicians can't woo companies with tax breaks while denouncing them for 'avoidance The Labour leader paid lip service to a new "international agreement" on tax, but said that, if he were Prime Minister, the UK would in any case "go it alone." This would presumably mean that the UK would change internationally agreed tax accords to ensure that foreign companies operating in Britain paid more tax than they would anywhere else. The impact on British businesses, such as Diageo or GlaxoSmithKline, which operate in international markets, can only be guessed at. It would be foolish to suppose that a unilateral tax hike on foreign companies in the UK would not result in tit-for-tat actions against British businesses operating abroad. As Vindi Banga, partner at private equity firm Clayton, Dubilier & Rice, revealed when this issue first blew up six months ago: "Many UK-based companies derive significant royalty income streams from their overseas subsidiaries to their home base, so much so that the royalty inflow into the UK is greater than the outflow, making the balance of payments on royalties a net positive." Any change would put such benefits at risk. It is regrettable that Mr Miliband - and he is not alone among politicians - appears wilfully ignorant of tax law: a legal issue overseen by the tax authorities. As HMRC says: "Companies are required to pay corporation tax in the country where they carry on the economic activity that generates their profits, not where their customers are located. This is not tax avoidance: it is simply the way that corporation tax works. Google is an American business whose intellectual property (the most valuable part of its business) is located in the US, where it pays billions of dollars of tax. The UK Government's own Patent Box gives tax breaks here for Britain's technology firms in the hope that they remain here and grow. Is that unfair? Google, Amazon and Starbucks (which made the mistake of paying a "voluntary" amount of tax when it found itself in the eye of the storm last year) are not breaking any laws. As Eric Schmidt, the chairman of Google, pointed out on Wednesday, if the UK wants to change tax law to make it more "moral" then there is only one group of people who can do that - politicians. But if they do, let us be in no doubt about what it is - a tax increase, which will ultimately mean lower profits, lower levels of investment, fewer jobs and higher prices for consumers. Earlier this week, it was announced that Fiat Industrial was relocating to Britain from Italy because of the UK's more competitive low levels of corporation tax. Is that also a case of a foreign company avoiding tax? We await Mr Miliband's answer with bated breath. IMF's clever Plan B should not be discarded The International Monetary Fund has completed its diagnosis of the UK and prescribed an achingly clever "fiscally neutral" Plan B. For Plan B fanatics, there was the clear recommendation that Britain take an austerity holiday this year by "offsetting" the £10bn of scheduled consolidation with a round of debt-fuelled infrastructure spending. For Treasury acolytes, there was the IMF's qualification that its proposal was "fiscally neutral" over five years. In other words, jam today and cuts tomorrow. In practice, there is no way George Osborne is going to borrow a penny more this year. He used every trick in the Budget book in March to ensure borrowing for 2012-13 was lower than in 2011-12. On current forecasts, he has just £600m of wriggle room this year. But that doesn't mean the IMF's recommendations should be written off. Britain has adopted every one of its core proposals for the past two years - from credit easing, to QE, to state guarantees. Moreover, the Chancellor is fully behind the principle of increasing infrastructure spending - it is the execution of the policy that is frequently criticised, not the intent.Having already extended austerity for three years longer than originally envisaged, he could therefore copyright the IMF's "back-loading" policy of pushing cuts into the future. If the public finances pick up, he might even try a little in the Autumn Statement. But there is simply no point in jeopardising Britain's hard-won credibility by trying to buy growth, especially if the growth in question is just 0.5 percentage points for one year only. The IMF's David Lipton admitted it's "no silver bullet." By trying to be something to everyone, the IMF was being too clever by half. After all the noise, all the fund could offer was little more than tinkering on a grand stage. That said, if the Chancellor can find the £10bn by cuts more deeply elsewhere, count on him following the prescription. And he will try.