Market leading insight for tax experts
View online issue

Finance Bill: Gauke defends corporation tax rate reduction

printer Mail

Clause 3 (personal allowance for 2012/13 for those aged under 65), clause 5 (main rate of corporation tax for financial year 2012) and clause 6 (corporation tax charge and main rate for financial year 2013) of the Finance Bill were agreed by the Public Bill Committee on 26 April.

Owen Smith, the Shadow Exchequer Secretary, moved amendments to clauses 5 and 6 that would have required the government to review the impact of the corporate tax structure on different sectors and on growth, jobs and investment; and to review ’the evidence in favour of using reductions in the headline rate of corporation tax as a means of promoting long term international competitiveness’.

The government had invested ‘enormous faith’ in the competitiveness of the tax system being ‘arguably the principal driver’ of the economy in the coming years, Smith argued. The headline rate was only one tool that the government had to consider in terms of competitiveness.

‘If it was going to work, businesses would have said, “Right, we’ve really got confidence in these guys. They really know what they are doing. Corporation tax will come down. Hell, let’s put our hand in our pocket and get on with spending to get out of recession.” What have they done? They have hoarded money – £754bn of it. They are not spending, because the government’s tool does not work.’

David Gauke, the Exchequer Secretary, said: ‘Evidence shows that lower corporation tax rates encourage investment. For example, recent studies by Bond University and the OECD find statistically significant growth effects from cuts to rates. In particular, I can highlight the OECD analysis that shows that reducing the amount of revenue raised through corporation tax, compared with other taxes, could lead to an improvement in the productivity of the economy.’

Gauke said the government had reduced the small profits rate to 20%, rather than increasing it to 22% as proposed by the previous government. ‘By cutting the corporation tax rate, we increase the return on investment. By increasing the return on investment, investment is increased, which is good for the economy as a whole, whether it be big or small businesses.’

Government and opposition amendments as at 26 April are set out on the Parliament website. The committee will meet again on 22 and 24 May and 12, 14, 19, 21 and 26 June.