From the TUC

Cutting corporation tax – a boost for growth or pay-back time for the CBI?

22 Jun 2010, by in Economics

The Chancellor claimed that his budget was ‘progressive’, which would probably be a surprise to those who might justifiably expect to benefit from any usual definition of progressive measures. He also claimed it would boost the prospects for economic growth. How do the corporation tax cuts fare  judged by these claims?

The headline policy on corporation tax is the reduction of the main rate from 28% to 24% over the next four years. The Budget does not claim that this will have any impact on growth, but does boast that it ‘will give the UK the lowest rate of corporation tax in the G7’. Is this really a top priority at a time when the Government is trying to save billions of pounds and is cutting the benefits paid to protect the health of pregnant women?

For such tax cuts to be justified, there needs to be a credible argument that cutting corporation tax would feed through into higher economic growth and therefore jobs. However, the international evidence to support this assumption is weak; significantly, none is presented in the Budget at all. In addition, the corporation tax cuts are being funded by reforms to other tax credits and allowances. These include tax credits and allowances that are designed to encourage investment both in capital and R&D, so reducing these in favour of headline tax rate reductions is not likely to encourage growth.

In a budget full of drastic measures cutting the protection offered to vulnerable groups, it was essential that any tax cuts served a wider social and economic purpose such as boosting economic growth or jobs . The cuts to corporation tax rates fail this test and illustrate the Coalition Government’s ideological preference for prioritising profits over people.

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