Written evidence submitted by Natixis Investment Managers




Natixis Investment Managers is one of the world’s largest asset management firms, serving financial professionals with more insightful ways to construct portfolios. As at March 2020, our global assets under management totalled £732.6 billion+.


Our worldwide network of offices provides local expertise within key markets in the Americas, Asia Pacific, Middle East and Africa, and Europe. Each serves as a conduit to a diverse range of investment solutions from more than 20 affiliated investment managers around the globe.

Our firm’s history can be traced back to 1967.


We practice Active Thinking® — our insight-driven approach to active management. It balances diverse opinions, deep data, and detailed analysis to uncover new opportunities and deliver unconventional perspectives to help support each client’s strategy.


We believe in the power of independent thinking. Each investment manager at Natixis IM focuses on those investment styles and disciplines where they have proven expertise. The result is a selection of more than 200 investment strategies from some of the world’s most respected names in investment management.


At Natixis IM, we strive to create sustainable value and help investors seek returns that are more meaningful. Corporate social responsibility (CSR) principles have always been a core part of our culture. Our commitment to CSR is demonstrated in many ways. As an active manager, we look ahead and make thoughtful business decisions designed to create outcomes that endure — for our clients, our business, and our communities.


When we think about investing, we think beyond the balance sheet. As a results-oriented active manager focused on the long term, our multi-affiliate model allows for greater manager autonomy. Because we are a truly active firm, we do not rely solely on benchmarking, and can often respond more quickly and nimbly to market events and offer our clients strong diversification. We take a consultative approach focused on building long-term relationships and solving business problems, not simply selling products.


As part of our Active Thinking® approach, we frequently use environmental, social, and governance (ESG) factors to inform our investment strategies — and, globally, more than 91% of our assets are managed by affiliates that are signatories to the United Nations Principles for Responsible Investment (UN PRI).




We have answered only the questions we feel we have the expertise to answer. Please note the responses are from three sources: Natixis Investment Managers, Loomis Sayles & Company (a Natixis IM affiliate manager) and Natixis Bank.


  1. What are the major long-term pressures on the tax system in the UK, including those arising from changes in working practices, demographics, the environment and other factors? How are these affecting the efficiency of the tax base and the overall level of demand for public services?


Covid-19 will cause firms to re-evaluate their operating footprints, with the lessons learned from remote working opening the door to more geographic flexibility. In particular, service sector firms may consider shifting their operating footprint, and potentially corporate structures, should they wish to operate in a more decentralised manner. Firms with significant EU business and EU nationals in employment may see value in gradually distancing from operating in the UK due to the economic impact of Covid-19 and also the proposed changes to UK immigration rules arising out of Brexit. Such action would have implications for the tax base and tax competition.


The major long-term pressure is that the UK continues to run deficits right through the economic cycle. As a result, it has less room for manoeuvre during exceptional times such as these. In the short term, it is impossible to raise taxes on income or VAT until the effects of the Covid-19 pandemic have been resolved. It is worth noting that the impact on demand for public services is likely to be mixed, and it could be that changes in business location eases some needs for transit infrastructure projects.  


In terms of changes in working practices, the main risk of any jobs which can be done exclusively from home is that eventually organisations will question (1) why they have to pay London salaries and eventually (2) why the jobs have to be done in the UK at all instead of a low cost alternative country. This could cause serious complications for the tax base of the UK.


  1. What more can the UK do to protect its tax base from erosion as a result of globalisation and technological change, and what further impacts will the coronavirus pandemic have on our tax base?


International cooperation and incorporation of tax policy in broader strategic dialogues boost governments’ ability to prevent firms from tax shopping – and lessen the room to manoeuvre for countries seeking an advantage. As a key centre of global trade, financial, and cultural activity, the UK is well placed to act as a leader. Geopolitical activity, such as the US-EU rift on climate policy in particular creates a leadership vacuum that the UK is well-suited to fill. Climate policy is to a large degree tax (and regulatory) policy, and therefore leading on this issue provides a strategic path to enhanced leadership on global tax matters. The Bank of England has already started down this path with its climate stress testing on the regulatory side.   


Having a competitive corporate tax rate relative to the rest of the world is the obvious answer.  However, there are challenges posed by the technologically advanced environment that currently exists, where assets from a balance sheet can flow cross border at the touch of a keystroke.  Corporates will always find the best way to optimize post tax profits regardless, thus a potentially viable option is to have some form of an alternative minimum tax. This will prevent the creation of loopholes used for tax avoidance. This would work by having corporates pay their stated effective tax rate and should this level fall below a threshold level, a preset minimum tax rate would be triggered.  Therefore, a company would be making a payment equal to a floor rate in the worst-case scenario or their stated effective rate in the best case.  This prevents, or at least caps, the creative accounting and offshoring that takes place in an attempt to circumvent tax payments.  Without an international agreement it will be difficult for the UK to prevent tech companies from taking advantage of the global tax system.


Lastly, regarding the further impacts from the pandemic on the tax base, there is an expectation of:


  1. Do these pressures need to be met with tax reform, and if so, is this the right time for reform?


There is not necessarily a need for a comprehensive reform of the domestic system. A first step is an assessment of expenditure needs, tied to a long-term economic strategy. If this presents a need for fundamental reforms, those should be pursued as soon as possible as a delay could be detrimental and would contribute to uncertainty.


  1. What overall level of taxation can the economy bear without undesirable or counterproductive harm to economic growth?


Consistency, predictability and a well-developed policy framework are more important than a particular number. Focussing on a particular figure could fail to account for gains in productivity and major changes, such as Brexit for instance.


With income taxes (and NI) at the top rate at 47%, we do not believe these will be effective to raise more revenues if they are over 50% - as has been proven in the past. It is difficult to see consumption taxes rise any higher (with VAT at 20%).Thus we need to look at wealth taxes if we are to raise the tax base, or find ways for to ensure everyone pays their fair share (.i.e. stricter rules for tech companies and eradication of the black market).


It is vital to carry out an assessment of core expenditure needs, including robust public and expert consultation, identify areas where financial shortcomings are impeding optimal outcomes, and then make decisions on trade-offs – and, critically, explain trade-offs and lay out a subsequent strategy.


Given the nascent recovery, it is imperative that any meaningful economic growth not be short circuited too soon by either a premature tightening in financial conditions resulting from tighter monetary policy and/or a more restrictive fiscal policy.  A lower nominal growth backdrop appears set to remain in place making the economy more responsive to any marginal change in these conditions.  Therefore, changes in either individual tax rates or corporate tax rates could have a more meaningful impact today than historical relationships might demonstrate.  Given the likely lasting impairments to the tax base, the non-counterproductive tax rate might very well be lower than expected. 


  1. Which areas of the tax system are most in need of reform, and which are best left alone?


We believe the following may be relevant:


  1. What is the role of tax reliefs in rebuilding the economy and promoting economic growth and efficiency? Does the current regime of tax reliefs perform this role well?


Factors such as Brexit, immigration reform, and Covid-19 will likely impact the workforce, leading to a higher proportion of workers educated within schools in the UK. The Government should be looking to invest in education to ensure future gains in productivity.


On the other hand, the Government should not engage too much in subsidies and tax holidays to try to get tourism and travel/hospitality back to status quo ante, but instead focus on sustainability and growth.  Investment in infrastructure will benefit regions across the UK, particularly as we see a higher take-up of people opting to holiday domestically. The approach of investing in key areas is preferable to revenue-reducing incentives and tax holidays.


Tax relief and tax deferrals certainly help in providing a marginal boost to disposable income in the short run.  Providing those reliefs to lower income brackets certainly benefits the domestic consumption story as the marginal propensity to the consumer from this bracket is much higher than the upper income brackets.   However, higher income brackets tend to have a greater propensity to invest which tends to support longer term investment.  Thus, the focus could end up being a sliding scale with the policy response targeting the various stages of the economic recovery.    


  1. Is there a role for windfall taxes in the post coronavirus world?


No – a windfall tax is suboptimal. This would be punishing companies for profits that are the result of a government induced policy measure that was enacted as a response to a healthcare crisis.  In some cases, what we are seeing is simply an acceleration of existing trends - the move to more online shopping for example.  This was the trend we were witnessing pre-Covid-19 and now that trend is accelerated.  The acceleration of a pre-existing economic trend is not a reason to introduce a windfall tax?


The policy focus should be on forward-looking taxes that help achieve public goods and minimise the risk from future public health and safety crises. For example, airline taxes would be better to fund pandemic preparedness than the pay down of debt incurred in public support for the sector. Some of the windfalls are the result of firms that provided vital products (e.g. Zoom); this innovation helped to preserve economic and social activity and save many lives. Windfall taxes would send the wrong message about the UK as a jurisdiction which values important innovations.


In the event that the government was to go ahead with windfall taxes the tax revenue accrued from these windfalls be used to support those sectors that were adversely impacted by the virus.  Effectively, this acts as a redistribution of gains from those who inadvertently benefitted from the virus to those who, by no choice of their own, were hurt by the virus.   


  1. What is the right balance between taxation of work, savings/pensions and wealth?


It is important that people know what to expect throughout their lives – they will earn income, build wealth and receive pension payments. So long as the tax applied to each of these sources is predictable, people’s expectations will be well-formed, and they can make financial plans accordingly. Investment income should not be taxed at rates below other sources of income. Pension tax must be careful to ensure that there is no disproportionate tax effect where pension benefits made up for accepting lower wage compensation during working years (a particular issue for public sector retirees).


  1. What is the best way to tackle tax reform, including what changes might be needed at HMRC to support implementation, and how should the Government consult with stakeholders and parliament?


Public consultation to identify and balance expenditures is vital. It should be deep, broad, inclusive and deliberate, with all participants aware of the trade-offs and the process of decision-making. Getting this phase right will enhance the efficiency of expenditure, and the effective return on tax. The major changes brought about by Brexit and Covid-19 should flow in parallel with a strategic discussion about the future of the UK economy. The links between the expenditures needed to achieve this strategy should be clear.


August 2020