Pressing ahead with corporation tax rise estimated to cost £30 billion in lost growth

For immediate release

• In The Sunday Telegraph, the TaxPayers’ Alliance dynamic tax model suggests says the planned six per cent increase in corporation tax could cost £30.2 billion of lost GDP after a decade.
  
  
• Investment would be £11.9 billion higher after ten years if the rise was cancelled, highlighted by AstraZeneca’s announcement of a new manufacturing plant in low-tax Ireland rather than the UK.
  
  
• Founder of the Conservative Growth Group of MPs responds, saying the modelling shows that scrapping the rise would “create jobs, encourage investment and help pay for itself.”

As reported in The Sunday Telegraph today, the TaxPayers’ Alliance (TPA) dynamic tax model has estimated that the planned six percentage point increase in corporation tax could cost £30.2 billion of lost growth after ten years. This slower growth would see almost two thirds of the expected revenue from the rise to be lost through lower receipts.

Responding to the results, the founder of the Conservative Growth Group Rt Hon Ranil Jayawardena MP has called for the increase to be scrapped, saying this would create jobs, encourage investment and help pay for itself. 

The TPA’s model was created by Europe Economics and estimates the dynamic impact of tax changes on the economy and wages in the medium term, taking account of possible changes in public spending. Most modelling of tax changes only looks at immediate impacts on the public finances, but this static approach often does not reflect what happens in the real-world economy. 

The results suggest investment would be boosted by £11.9 billion after a decade if the corporation tax rise was cancelled, and would cause average weekly earnings to grow by £6.73. This follows news of AstraZeneca’s announcement that it would locate a new manufacturing plant in Ireland rather than the UK. The company’s CEO Pascal Soriot remarked on the UK’s “discouraging” tax regime. 

The TPA model is inspired by modelling previously published by HM Treasury in 2013, which forecasted the dynamic impact of cutting corporation tax rates on investment, wages, employment and prices. It showed increased investment, profits, wages, consumption and tax revenue. 

The TaxPayers’ Alliance is calling on the chancellor to scrap the increase in corporation tax to avoid damaging investment in Britain, and to commission new dynamic modelling on the impact of tax changes. 

John O’Connell, chief executive of the TaxPayers' Alliance, said:

"The simple fact is that businesses are being discouraged from investing in Britain because of the planned increase in corporation tax. 

“An investment shortage lies at the heart of our economic woes, and scaring off successful firms will make the problem worse.

“The chancellor should give British business some breathing room and cancel the corporation tax rise.”

Rt Hon Ranil Jayawardena MP, founder of the Conservative Growth Group, said:

“Targeted tax cuts are a powerful tool to boost economic growth.

“This model from Europe Economics shows that simply not increasing Corporation Tax from 19 per cent to 25 per cent would create jobs, encourage investment and help pay for itself. We should look again at scrapping this tax hike on businesses at a time when we need them to succeed.  

“The £300 million plant that AstraZeneca cancelled because of the proposed increase is just one example that would have created jobs and grown the economy. The ‘abacus economics’ favoured by some have been disproven by just one company.”

TPA spokespeople are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)

Media contact:

Conor Holohan
Media Campaign Manager, TaxPayers' Alliance
[email protected]
24-hour media hotline: 07795 084 113 (no texts)

Notes to editors:

1. Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
   
   
2. TaxPayers' Alliance's advisory council.
   
   
3. The TaxPayers’ Alliance dynamic tax model was created by Europe Economics, and is a modified Ramsey-Cass-Koopmans model. More information is available here.
   
   
4. The 2013 HM Treasury modelling, Analysis of the dynamic effects of Corporation Tax reductions, can be found here.