Radical reform of tax system is needed, says Sage boss

By Adam Parsons
BBC Newsnight

media captionStephen Kelly says there needs to be "radical reform" of the tax system

The head of the UK's biggest tech company says the government should conduct "a radical reform of the tax system" - including business rates.

Stephen Kelly, chief executive of software giant Sage, says the tax system unfairly benefits multinationals over small entrepreneurs.

Speaking to BBC Newsnight, he said the system is "unfit for the digital age".

Prime Minister Theresa May has announced a series of measures aimed at supporting British business.

In Mrs May's speech to the CBI earlier on Monday, she outlined a £2bn support package for research and development, and included much about entrepreneurship and technology.

She said she wanted the UK to become the "the global go-to place for scientists, innovators and tech investors" and also promised more research into how small companies can be helped to grow.

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Sage is a shining example of a company that has done just that. Founded in 1981 to produce accountancy software, it is now valued at £7.4bn, and employs more than 13,000 people.

Following the sale of the chip maker ARM earlier this year - bought by the Japanese company Softbank in a £24bn deal - Sage is now the UK's biggest tech company.

Stephen Kelly says the government has a "golden opportunity" to support a thriving tech sector that he believes needs to be "nurtured and encouraged". But he claims that entrepreneurship in the UK is being held back by an outmoded tax system.

"The business rates system in this country was invented 400 years ago and it's totally unfit for a digital age. You can now have a small business that has a High Street stores, a website and is adopting e-commerce, but finds it has to sell through a digital multinational from the US.

"The irony is that it means that a small business in Milton Keynes or Runcorn, is effectively subsidising these massive companies that are operating from the US - giant companies that are optimising their tax very efficiently.

"The small businesses are getting up every day, working 70 or 80 hours per week, going through huge sacrifices, and always paying their taxes. And they're subsidising American multinationals. It doesn't make sense, and it's unfair."

Mr Kelly is careful not to name the companies he's thinking of, but he hardly needs to. When I ask him whether he's thinking of the example set by Amazon, Google and Starbucks, he smiles and says: "I would call for a much broader movement - for business to be responsible citizens of the countries where you operate and sell. We believe businesses should pay taxes where they are due. I feel disappointed for UK businesses who are selling through these multinationals, paying a 20% commission, and subsidising them."

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image captionCompanies like Starbucks have come under pressure to pay more in tax

He says a new tax system on businesses should reflect money earned online, "to pay fair tax in the appropriate jurisdiction" and "to ensure that physical things, like property, have very little meaning - because the internet has changed everything".

Yet Mr Kelly exudes optimism about the future of his sector of the economy. He describes the present era as "an unparalleled opportunity" and believes that "there is no reason why the UK cannot excel, and lead the world".

But he warns that the UK's tech sector needs to lose its "fear of failure". Mr Kelly, a veteran of Silicon Valley, believes UK companies have been too quick to use success as an opportunity to sell up, rather than persevering and growing.

"That's the challenge - to go big and go global and even acquire companies from overseas. We don't want to be valiant semi-finalists - we want to win the World Cup. We have the talent, the infrastructure, the language and the skills, but we have to push - because success will breed more success"

Adam Parsons is Business Editor for BBC Newsnight. Watch more on this story on the programme at 22:30 GMT on BBC Two - or catch up afterwards on iPlayer.

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