Increasing Corporation Tax to scrap tuition fees would be economic madness

The University and Colleges Union (UCU) and Compass have released a new report arguing that corporation tax should be increased to replace tuition fees.  There are a number of critical flaws in their analysis.

Most importantly, they don't deal with the consequences of increasing corporate tax.

A CEBR report in 2007 for the TPA found that if pre-announced, phased (2 per cent each year) corporation tax cuts to 12.5 per cent were made, then by 2021 and relative to the baseline forecast: GDP would be 8.7 per cent higher; total fixed investment would be 60.9 per cent higher; total employment would be 8.7 per cent higher while manufacturing employment would be 10.1 per cent higher; disposable income would be 9 per cent higher largely due to a 13.5 per cent boost to wages and salaries; consumer spending would be boosted by 2.3 per cent; and the savings ratio would be 13.1 per cent higher.

TPA analysis found that a 10 per cent cut in corporate tax rates was associated with a 5 per cent rise in corporate tax revenue growth.  That report also cited evidence from the World Bank, produced as part of its “Doing Business” programme, which found that a 10 percentage point increase in the effective corporate tax rate reduces the ratio of investment to GDP by 2 percentage points; reduces business density by 1.9 firms per 100 people (average is 5), and the average entry rate by 1.4 percentage points (average is 8); and raises the informal economy as a share of economic activity by 2 percentage points.

So the UCU's proposal would almost certainly leave us, in short order, with less revenue (so it definitely couldn't reduce tuition fees) and a host of other economic problems.  We would all be worse off and more people would be out of work.

Does their analysis that business isn't 

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