The prime minister, Boris Johnson, announced to the CBI conference on Monday that the government will not go ahead with the planned reduction in corporation tax to 17% from April 2020.
The prime minister told the CBI conference that the government would be ‘postponing further cuts in corporation tax’, meaning the planned reduction from 19% to 17% in April 2020, contained in Finance Act 2016, will not go ahead. Mr Johnson said that cancelling the corporation tax cut would provide the Treasury with £6bn to spend on the NHS, which he described as the ‘nation’s priority’.
The Office for Budget Responsibility estimated in March that the cut to 17% would reduce tax receipts by £5.4bn a year by 2023/24.
This contrasts with the view expressed by most of the candidates in last summer’s leadership contest that reducing business taxes would result in higher revenues. However, the IFS points out that while corporation tax revenue may have increased since 2010 amid falling headline rates, it is not the rate reductions that have been responsible for increasing revenue. Instead, we have seen revenues recovering from the effects of the financial crisis. In addition, as the government has reduced the headline rate, it has increased corporation tax in other ways, including reducing capital allowances for investment, introducing the bank surcharge, restricting companies’ ability to offset past losses against future profits, and a raft of anti-avoidance measures.
Stuart Adam, an economist at the IFS, said: ‘Corporation tax revenues today are at much the same the level they were at before the financial crisis, despite a seven percentage point cut in the headline rate. That is largely because a series of other changes have increased the effective rate of corporation tax: the headline rate is not all that matters. Abandoning the proposed further two percentage point cut will leave the government with about £6bn a year more revenue than it would have received had it gone ahead with the cut.’
The UK’s current corporation tax rate of 19% compares with an average rate in the EU of 22% and there is not much evidence of demands for further cuts. Dan Neidle, tax partner at Clifford Chance, tweeted: ‘I have come across literally nobody in business who was calling for the corporation tax rate to drop to 17%’.
Ahead of the main political parties’ manifestos, what else are they promising in relation to tax?
The Conservatives would:
cut employer NICs by increasing the employment allowance from £3,000 to £4,000;
increase the structures and buildings allowance (SBA) from 2% to 3%;
increase the R&D tax credit rate from 12% to 13%;
introduce new fiscal rules, including maintaining a balanced budget and ensuring investment does not exceed 3% of GDP; and
in Scotland, stop increasing income tax differences between Scotland and the rest of the UK.
The Conservatives estimate the employment allowance, SBA and R&D measures will benefit businesses by approximately £1bn in 2022/23.
The prime minister suggested in an interview with The Sunday Telegraph on 17 November that the Conservatives would now prioritise tax cuts for people on lower incomes over his earlier promise to increase the income tax higher rate threshold. On the higher rate threshold increase, he said: ‘We won’t do it until we have done more for people on low incomes’.
Labour would:
Impose no income tax, NIC or VAT increases ‘for 95% of the population’; and
in Scotland, ‘ask large corporations to pay more’.
The Liberal Democrats propose:
a 1p rise in income tax to spend on health and social care.
The prime minister, Boris Johnson, announced to the CBI conference on Monday that the government will not go ahead with the planned reduction in corporation tax to 17% from April 2020.
The prime minister told the CBI conference that the government would be ‘postponing further cuts in corporation tax’, meaning the planned reduction from 19% to 17% in April 2020, contained in Finance Act 2016, will not go ahead. Mr Johnson said that cancelling the corporation tax cut would provide the Treasury with £6bn to spend on the NHS, which he described as the ‘nation’s priority’.
The Office for Budget Responsibility estimated in March that the cut to 17% would reduce tax receipts by £5.4bn a year by 2023/24.
This contrasts with the view expressed by most of the candidates in last summer’s leadership contest that reducing business taxes would result in higher revenues. However, the IFS points out that while corporation tax revenue may have increased since 2010 amid falling headline rates, it is not the rate reductions that have been responsible for increasing revenue. Instead, we have seen revenues recovering from the effects of the financial crisis. In addition, as the government has reduced the headline rate, it has increased corporation tax in other ways, including reducing capital allowances for investment, introducing the bank surcharge, restricting companies’ ability to offset past losses against future profits, and a raft of anti-avoidance measures.
Stuart Adam, an economist at the IFS, said: ‘Corporation tax revenues today are at much the same the level they were at before the financial crisis, despite a seven percentage point cut in the headline rate. That is largely because a series of other changes have increased the effective rate of corporation tax: the headline rate is not all that matters. Abandoning the proposed further two percentage point cut will leave the government with about £6bn a year more revenue than it would have received had it gone ahead with the cut.’
The UK’s current corporation tax rate of 19% compares with an average rate in the EU of 22% and there is not much evidence of demands for further cuts. Dan Neidle, tax partner at Clifford Chance, tweeted: ‘I have come across literally nobody in business who was calling for the corporation tax rate to drop to 17%’.
Ahead of the main political parties’ manifestos, what else are they promising in relation to tax?
The Conservatives would:
cut employer NICs by increasing the employment allowance from £3,000 to £4,000;
increase the structures and buildings allowance (SBA) from 2% to 3%;
increase the R&D tax credit rate from 12% to 13%;
introduce new fiscal rules, including maintaining a balanced budget and ensuring investment does not exceed 3% of GDP; and
in Scotland, stop increasing income tax differences between Scotland and the rest of the UK.
The Conservatives estimate the employment allowance, SBA and R&D measures will benefit businesses by approximately £1bn in 2022/23.
The prime minister suggested in an interview with The Sunday Telegraph on 17 November that the Conservatives would now prioritise tax cuts for people on lower incomes over his earlier promise to increase the income tax higher rate threshold. On the higher rate threshold increase, he said: ‘We won’t do it until we have done more for people on low incomes’.
Labour would:
Impose no income tax, NIC or VAT increases ‘for 95% of the population’; and
in Scotland, ‘ask large corporations to pay more’.
The Liberal Democrats propose:
a 1p rise in income tax to spend on health and social care.
