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|The Case for Corporation Tax Cuts|
|Wednesday, 08 March 2017|
Despite the government’s cut in the corporation tax rate from 28% to 20%, corporation tax receipts have seen an increase of 28% since 2011-12. The decision to cut the headline rate to 20% as part of a raft of measures to increase competitiveness has led to stronger economic growth and higher profitability for companies across the UK, which in turn led to the increased receipts. The UK is now the 7th most competitive economy in the world, up from 11th in 2010.
An additional cut in the corporation tax rate is planned, down to 17% in 2020, which will further boost the UK’s competitiveness. But the Labour Party has publicly stated they would reverse this if in government and go even further, increasing the rate to 21.5%, in order to fund spending amounting to £15 billion per annum.
However, research published today by the Centre for Policy Studies has found that, at most, this action could raise between £3.7 and £5 billion in the long term, leaving Labour with a £10 billion funding gap between their corporation tax plan and their associated spending pledges.
Even if the corporation tax rate was reset to 28%, Labour's plans would still have unfunded spending commitments as the receipts would not amount to their spending pledges.
In any case, such an increase in corporation tax rates would reverse the gains achieved by the current cuts, which have led to increased investment, higher GDP growth, stronger wage growth, and more job creation. Moreover, a rise in the UK's corporation tax rate would damage the country's competitiveness when other developed economies - including Canada and Japan - have been slashing their rates.
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