I’ve chosen to write about corporate tax rates this week not because they’re the sexiest subject available but because – unlike the government’s frontbench, the value of the pound and the scale of winter fuel bills – they’re unlikely to change dramatically during the shelf-life of this column. An increase in corporation tax from 19 per cent to 25 per cent, originally announced by Rishi Sunak, will go ahead in April, despite new Chancellor Jeremy Hunt’s own leadership campaign pledge to cut the rate to 15 per cent, which would have placed the UK between Ireland and Singapore in competitive tax tables. The uplift will, we’re told, tip £19 billion (based on HMRC’s reckoner of £3.1 billion per percentage point) into the public-finance black hole which so spooked the bond market. So that’s all right then.
But in reality, the corporate tax take is a dynamic function of business efficiency, economic health and international reputation. Personal taxes, on which citizens vote, pay for the bulk of government; corporate taxes and reliefs should be seen first and foremost as levers for generating higher performance, not least by attracting inward investment, which in turn generates higher personal incomes. But low corporate tax rates do not boost investment unless wider prospects are predictably favourable; and high corporate rates are neither a moral good in themselves nor a guarantee of higher revenues.
What’s my point? That when the current hoohah dies down, whoever is chancellor should be brave enough to revisit the corporate tax piece of the mini-Budget fiasco and propose a regime that really does help put the UK ahead of its competitors. What we have for now is a market-calming stopgap with a revenue number attached that might as well have been pulled out of thin air.
Tucker’s takeaway
Sir Paul Tucker – the former Bank of England deputy governor who I last glimpsed at Buckingham Palace forlornly collecting the gong that was his consolation for not winning the governorship in 2013 – has come up with a partial remedy for the public finances.
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