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laeva recumbens anguis
Cable Forum Team
Join Date: Jun 2006
Age: 68
Services: Premiere Collection
Posts: 43,620
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Re: The Chronicles of Rishi
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Originally Posted by Sephiroth
I'm not sure whether you are laying a trap here. Why else would you put this question?
But obviously, reducing CT could attract business investment leading to greater wealth.
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Greater wealth for who?
The U.K. already has permanent full expensing (100% tax deduction) for all qualifying plant and machinery investments - this has increased total business investment by £14 billion over the forecast period or £3 billion a year (1.2 per cent on average)…
https://obr.uk/box/the-impact-of-cor...20March%202023.
You may (or may not) find this research of interest…
https://www.ippr.org/articles/cuttin...ing-investment
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The way corporation tax cuts are justified goes something like this: the UK has low levels of productivity and low levels of capital investment, and both need to rise. By cutting tax rates, this reduces the tax bill of firms, putting money on their balance sheet that they will then invest in capital or research and development (R&D), which will result in economic growth. A secondary aim is that by having a 'competitive' tax rate (ie lower than comparable countries) the UK will be a more attractive investment destination.
The problem with this story is that it has not turned out like that. Whilst UK corporation tax rates have fallen since 2007, private sector investment is still amongst the lowest in the OECD, the lowest in the G7, and far below the average among developed economies. Corporate tax cuts have failed on their own promise.
As shown in figure 2, compared to comparable countries such as the USA, Germany, France and Japan, the UK has low private sector investment as a proportion of GDP. In 2019 the UK fell behind Italy and Canada to have the lowest private sector investment in the G7 as a proportion of GDP (figure 3).
Within the OECD group of developed economies, the UK fell in the rankings from mid-range in 1995 to second from bottom in 2008. In the past decade, the UK’s highest ranking for private sector investment within the OECD was in 2016, when it ranked 28th out of 35 countries. In 2020, the most recent year for which we have good data, the UK was 28th out of 31 OECD countries, and bottom of the G7 (table 1).
What is clear from this is that cutting corporation tax has failed to increase the UK’s dire levels of private sector investment. In fact, while we have been engaged in the race to the bottom on business taxation, our relative performance on business investment has been worsening.
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Figure 4 compares the UK to other OECD countries (for whom we have data) on levels of corporate taxation and private sector investment in 2020. Firstly, there is little to no correlation between low corporation tax and higher levels of private sector investment. Secondly, the UK is already amongst the lowest tax rates in the OECD and, as already established, the lowest levels of private sector investment. Lastly, most developed economies have both higher rates of corporation tax and higher levels of private sector investment.
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What can we conclude from this?
1. Cutting corporation tax is no panacea for raising investment
2. Over the past decade we have cut corporation tax, and this has failed on its own promise of increasing private sector investment
3. Despite having some of the lowest levels of corporate taxation in the OECD, we also have some of the lowest levels of business investment
4. Most of our competitors have much higher levels of both corporation tax and investment
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tl:dr - it’s not that simple
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Last edited by Hugh; 24-01-2024 at 13:55.
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