Fair Tax Foundation statement on UK political developments and corporation tax increase (14th October 2022)

photo of Paul MonaghanPaul Monaghan. Chief Executive, Fair Tax Foundation, said: “We whole-heartedly welcome this U-Turn on corporation tax by the UK Government, which still leaves the UK with the lowest headline rate of corporation tax of the major economies of the G7 nations and the most generous “super deduction” capital allowance scheme in the world. The idea that turning the UK into a tax haven would quickly lead to a massive increase in investment by business was always fantasy island economics  – especially given the response of global markets and the ensuing rise in interest rates and the cost of borrowing.

In fact, there is very little evidence to support the idea that cuts to the headline rate of corporation tax leads to leaps in business investment and thereafter much greater profits and tax receipts. Consider the fact the UK has had, by some way, the lowest corporate tax among G7 nations for a number years, whilst also having the lowest investment levels and continued productivity underperformance. Or that the UK’s “super deduction” big business tax relief scheme, which will cost £27 billion over two years, and has obliterated the tax returns of the likes of Amazon UK, has not led to a significant increase in investment. Then there’s the evidence from further afield. When the United States slashed its corporation tax under President Trump there was no leap in investment. Instead, tax revenues fell and there was an upsurge in corporate share buybacks, as large multinationals found an outlet for the cash that they were now swimming in. And perhaps the definitive nail in the coffin of the lazy Laffer Curve thinking of the ‘low tax’ dogmatics is a meta-analysis recently published in European Economic Review, which found that the effect of corporate tax cuts on economic growth to not only be “highly ambiguous”, but also that “publication selectivity” was prevalent – i.e., researchers more prone to publishing results when they supported the case for lowering tax!

Corporation tax is simply one factor among many to guide business investment decision making. The majority of UK “big business” are not out there actively lobbying for a cut in Corporation Tax. They recognise that they need to do their bit and contribute to vital public services. If the playing field is fair and level they trust themselves to compete, and are not looking for unfair advantages. They are certainly not looking for the UK to aim to undercut the corporation tax rates of Russia and Saudi Arabia, which was the track the UK was previously on with its stated aim of having the lowest corporation tax among G20 nations.”