Corporation tax cut welcome but doesn't go far enough

Peter Spence
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The announced reduction of corporation tax to 20 per cent by April 2015 is a welcome one, but less than could have been hoped for. The Adam Smith Institute provides evidence that cuts should have gone further:

Corporation tax falls almost entirely on workers’ wages: a recent study of European countries by economists at the Universities of Warwick and Oxford found that, in the long run, 92% of any rise in corporation tax falls on wages, not profits.

In Ireland, corporation tax receipts more than doubled after it cut corporation taxes from 40% to 12.5%, thanks to big increases in foreign direct investment by multinational corporations. Ireland still has the lowest corporation tax rate in Western Europe, and even in its recession has attracted big name firms like Google, Amazon and Twitter to headquarter there instead of London. Ireland is making the strongest comeback from its recession of any Eurozone country, thanks largely to its business-friendly tax regime.

(Adam Smith Institute)

Canadian slashing of corporation tax has beaten the UK's more feeble cuts each year. The country has reduced corporation tax by 1.5 per cent per year from 2010 to 2012.

Matthew Barling, PwC banking tax partner, commented on the accompanying rise in the bank levy:

The bank levy rate has now risen by over 80% since it was introduced in 2011. This is a major cost for banks operating in the UK and is not a good advert for the City of London's competitiveness as a global financial centre, particularly at a time when this is already under threat from other quarters.