Are we starting to get movement on corporate tax?

The Spectator reports that the Conservatives are considering ambitious moves to cut corporate tax.  James Forsyth, the magazine’s political editor, reports that:

“The plan is a Laffer-style supply-side reform: by lowering tax rates, you increase the tax yield.  There are even whispers that the aim is to reduce it to close to Ireland’s 12.5 per cent level by the end of the party’s first term in office.”

There is a huge body of economic evidence which shows that countries with lower corporate tax rates grow their economies much faster.  That means more opportunities for people who want to get on, greater prosperity for ordinary Britons and ultimately higher revenue from a range of capital, consumption and income taxes so that essential public services can be paid for without high tax rates.  A recent TaxPayers’ Alliance report (PDF) for the group Conservative Way Forward brings this evidence together and provides new evidence that countries with lower corporate tax rates tend to enjoy higher growth in corporate tax revenue.

If the Conservatives can combine this with the ambitious regulatory reform agenda announced by the Business team then there will be good reason to hope that the country can soon look forwad to a brighter future than the relative economic decline that so much evidence suggests we are facing today.  At the TaxPayers’ Alliance, our prime focus will always be on the taxes that affect ordinary Britons the most.  It is absolutely essential though, to keep in mind that the highest price, for the harm high corporate taxes do to the economy, is not paid by those who are already wealthy but those who work hard and want an opportunity to get on.

Unfortunately, the article also confirms that the Conservatives are probably planning on increasing the VAT rate to 20%.  It would be supremely ironic if the party kept the new top rate of 50p in order to try and signal that they aren’t the party of the wealthy but then put in a tax rate that would be felt most by those on average and below average incomes.  We are planning to do more work responding to this, and other proposals to address the fiscal crisis, quite soon.  In short though, with the poor already paying more in tax than the rich, as a percentage of their income – largely due to high indirect tax rates – the Conservatives should ask themselves whether they want their pro-growth agenda to be remembered alongside a tax hike for the worst-off.  They should be more ambitious on cutting spending instead, another subject we will be returning to shortly.

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