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Tax companies on gross profitability to deter mergers
December, 04th 2009

Sir, Was it mere fortune or deliberate mischief that caused John Gapper's eulogy on the British approach to mergers and acquisitions ("A healthy appetite for the right price", November 26) to appear directly above Maurice Saatchi's hand-wringing article asking what can be done to prevent the concentration of power in fewer and fewer hands ("Only competition can safeguard free markets") ?

It seems self-evident, based on Mr Gapper's analysis, that the "self-interest of rational individuals" (Lord Saatchi's phrase) will lead them to always agree to a sale if the price is right.

After all, if they have no intention of being part of the merged company, what do they care whether it continues to function? The ultimate conclusion must be that there will be ever fewer, increasingly large businesses in the marketplace. And the implication is that those businesses will be increasingly inefficient.

The government can, and should, act to reverse this trend. A simple solution would be to introduce a progressive corporation tax - acting like the current income tax - that penalises companies based not on their net profitability but on their gross profitability.

Such a tax would act as a strong deterrent to companies becoming ever larger and create an incentive for demergers.

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