Current account deficit down to tax avoiding companies, says expert

The large current account deficit in the country may not be as bad as it seems when tax avoidance by large companies is taken into account, according to a research article that has been recently published.

The article was written by Philip Lane, a professor of economics that will be taking over the position of governor of Ireland’s central bank.

He said that the state of the current account deficit is not a very good basis for judging the state of the country’s finances.

“Substantial investments … in the gathering and analysis of more granular financial data are required if cross-border financial transactions and linkages are to be understood with any degree of accuracy,” the article read.

Unfortunately, the UK’s current account deficit has reportedly reached a record high of 5.1 per cent of the gross domestic product last year.

The Bank of England was reported to say that this is because of foreign investments in Britain generating higher returns than British investments in the Euro Zone.

However, Lane thinks that the figure could be being warped by the British firms moving their headqaurters abroad for tax reasons, despite their main economic activity staying in Brtiain.

“To the extent that such financial engineering activities have no impact on the true net international investment position, any concerns about the sustainability of the external position are attenuated,” he said.