The cut in corporation tax is a multi-million missed opportunity to target investment in low carbon growth industries.
Business leaders may have welcomed the cut in corporation tax from 28% to 24% by 2014. They say it delivers a message that “Britain is open for business.” But spread indiscriminately across the whole private sector, including banks, what chance is there that the £1.6bn tax cut over the next two years will be used to tackle the recession now and stimulate new green jobs and skills?
|Coalition corporation tax cut – £millions||£10m||£400m||£1,200m||£2,100m||£2,700m|
£1.6bn is double the £750 million earmarked in Labour’s 2009 Budget “for low carbon investment”. That’s exactly what happened. Despite the coalition’s huffing and puffing about value for money and affordability, most of the public sums involved for wind turbine test facilities, renewables demonstration plant, science parks, electric cars and car battery plant and the rest – survived the Vince Cable review.
Except, that is, for two hits on Sheffield – the £80m loan to Sheffield Forgemasters and its Sheepcote Lane business park. Cable seems to have mistakenly believed that the Forgemasters investment was confined to making nuclear plant components. But the equipment could also provide specialist steels for the renewable industries as well.
So what happened to the “full programme of measures” on climate change promised by the coalition?
Massive, targeted investment is required to develop green energy jobs. The Committee on Climate Change has already argued that “dramatic” reductions in the price of carbon in recent months “create a significant danger that the carbon price will be too low to incentivise the investment.” With the credit crunch restricting availability of finance, the Committee called for a new framework to support investment in CCS and new wind generation capacity to decarbonise the power sector.
Spread thinly across the private sector, the danger is that the aggregate £6.4bn corporation tax benefit to 2015 will not drive long-term green job creation, but instead feed short-term decisions, like corporate bonuses. FTSE 100 executives increased theirs by 22.5% in the second half of 2009, according to Income Data Services. Or paying for the new “bank levy”! The Government has already acknowledged that banks may pass on some or all of the levy in the form of a higher cost of corporate finance.
There’s a further worry. The Government will recoup £1.8billion by axing the tax breaks available to businesses that can write off the costs of assets such as plants and machinery against their taxable income. The moves were criticised by manufacturers’ body the Engineering Employers’ Federation: “Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”