New research: Corporation Tax Policy Brief

April 25, 2011 10:44 AM

Corporation Tax is not fit for purpose. This new Briefing Note for the 2020 Tax Commission, written by Commissioner and Associate Professor of Economics at the ESCP Europe Business School Anthony J. Evans, measures the tax against four key criteria, and finds that it drives down wages; lowers returns for shareholders; and raises prices for consumers. In fact, studies have found that found that an increase in Corporation Tax of 1 per cent can lead to a fall in annual gross wages of 0.52 percent. If applied to the median wage in the UK (£21,221), that would mean an extra £552 a year for workers could result from the 5 per cent Corporation Tax cut planned.  That finding was reported this morning in the Sun.

The Chancellor announced a welcome cut in Corporation Tax at the Budget in March 2011. Over the next Parliament, the headline rate will drop to 23 per cent, the lowest in the G7. But the effective rate on new investment in the UK – the real rates faced by firms and passed on to individuals – is currently 27.9 per cent, compared to an OECD average of 18.6 per cent. Reducing the headline is a good signal to businesses, but more needs to be done to lower the effective rate.

Matthew Sinclair, Director of the TaxPayers’ Alliance, said:

"Companies don't pay taxes, people do, whether that means shareholders like pension funds or workers who get lower wages. High corporate taxes are such an economic disaster that cutting them significantly can leave ordinary workers hundreds of pounds a year better off and ultimately even produce more of a return for the public purse. The Government are right to see this as a real priority, and could be even more aggressive to cut taxes so everyone can see a light at the end of the tunnel after years of depressing economic news."Corporation Tax is not fit for purpose. This new Briefing Note for the 2020 Tax Commission, written by Commissioner and Associate Professor of Economics at the ESCP Europe Business School Anthony J. Evans, measures the tax against four key criteria, and finds that it drives down wages; lowers returns for shareholders; and raises prices for consumers. In fact, studies have found that found that an increase in Corporation Tax of 1 per cent can lead to a fall in annual gross wages of 0.52 percent. If applied to the median wage in the UK (£21,221), that would mean an extra £552 a year for workers could result from the 5 per cent Corporation Tax cut planned.  That finding was reported this morning in the Sun.

The Chancellor announced a welcome cut in Corporation Tax at the Budget in March 2011. Over the next Parliament, the headline rate will drop to 23 per cent, the lowest in the G7. But the effective rate on new investment in the UK – the real rates faced by firms and passed on to individuals – is currently 27.9 per cent, compared to an OECD average of 18.6 per cent. Reducing the headline is a good signal to businesses, but more needs to be done to lower the effective rate.

Matthew Sinclair, Director of the TaxPayers’ Alliance, said:

"Companies don't pay taxes, people do, whether that means shareholders like pension funds or workers who get lower wages. High corporate taxes are such an economic disaster that cutting them significantly can leave ordinary workers hundreds of pounds a year better off and ultimately even produce more of a return for the public purse. The Government are right to see this as a real priority, and could be even more aggressive to cut taxes so everyone can see a light at the end of the tunnel after years of depressing economic news."

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