Chancellor admits £95 billion of tax cuts for business didn’t boost investment or raise revenue - Anneliese Dodds

• Sunak admits cuts to the main rate of corporation tax since 2010 didn’t lead to “a step change in the level of capital investment”.
• He also admitted the cuts didn’t lead to higher revenues, despite a decade of claims from former Conservative Chancellors.
• Cuts to corporation tax have cost the Exchequer an estimated £95 billion in total over the last few years – money that could have strengthened Britain’s economy before Covid hit.
• Instead the Conservatives weakened its foundations by slashing salaries for key workers, letting schools and hospitals fall into disrepair and taking 21,000 police off our streets.

Chancellor Rishi Sunak has admitted that a decade of Tory tax cuts for business failed to boost investment in the UK economy or raise extra revenue for the Treasury.

Cuts to corporation tax by successive Conservative governments have cost the Exchequer £95 billion over the last few years – money that could have been spent on our NHS, schools and keeping police on our streets.

For more than a decade, the Conservatives argued, as the Prime Minister did in 2019, that “every time corporation tax has been cut in this country it has produced more revenue”. Since 2010, the headline rate of corporation tax has been cut from 28 per cent to 19 per cent.

But this week, the Chancellor Rishi Sunak confessed that “we haven’t seen a step change in the level of capital investment that businesses are doing as a result of those corporation tax cut decreases.”

He also admitted the cuts did not directly raise revenue, saying that any rise in corporation tax receipts that concurrent with falling rates was due to a cyclical uptick in business profits.

In 2017, the Conservatives’ own twitter account claimed tax cuts meant “more money for public services” whilst as far back as 2015, the Conservatives were also arguing that any rise to corporation tax would reduce growth and cost “10,000 jobs.” Sunak’s move this week has completely discredited that argument and the ideology that underpins it.

Labour has long argued for increases in corporation tax to bring the UK back in line with comparable economies. The OBR document published alongside this week’s Budget confirmed that increasing corporation tax will raise £17.2 billion in 2025/26 – more than the entire police budget.

Anneliese Dodds, Labour’s Shadow Chancellor, said:

“Labour has argued for over a decade that cuts to corporation tax don’t boost investment or raise extra revenue – they just cost the Treasury billions that could have been put to better use.

“We welcome the Chancellor’s conversion to our point of view, but we can never get back the £95 billion lost to the Treasury over the last few years from this economically illiterate tax cut.

“That money could have been used to strengthen our economy going into this crisis. Instead the Conservatives slashed salaries for key workers, ran down our schools and hospitals, and cut 21,000 police officers from our streets.

“Never again should any Conservative government be allowed to use such a discredited economic argument to weaken the foundations of our country.”

Ends

Notes to editors:

• Cost of corporation tax cuts uses HMRC’s “Direct effect of illustrative tax changes” publication which provides a ‘ready reckoner’ for illustrative changes in taxation in particular financial years.

• Analysis covers 2015/16 to 2020/21, using five different ‘ready reckoners’ to estimate the cost of corporation tax cuts announced by the Conservatives in that year. For instance, in 2020/21 it looks at the estimated cost of a 9% cut in corporation tax, which is the difference between the rate when the Conservatives entered office (28%) and the rate in that financial year (19%). The rate of corporation tax was 20% in 2015/16 and 2016/17, falling to 19% after that.

Archived, direct effect of illustrative tax changes, https://webarchive.nationalarchives.gov.uk/*/https://www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes

Publications used: April 2019, April 2018, April 2017 and March 2016, March 2015

• In 2016 then-Chancellor George Osborne said “not only have our corporation tax cuts given us the lowest corporation tax rate of all the advanced economies of the world, but we have seen a 20% increase in receipts from corporation tax—because businesses are coming to this country, growing their businesses in this country and employing 2 million people.”

July 2016, https://www.theyworkforyou.com/debates/?id=2016-07-04a.622.0&s=%22corporation+tax%22+speaker%3A11145#g624.0

• In 2014 he claimed a rise in corporation tax would “put people out of work and ensure that investment does not come to Britain” and that “modelling of the effect of tax cuts on investment and growth, and cuts in corporation tax…are shown to have positive impacts on the economy.”

June 2014, https://www.theyworkforyou.com/debates/?id=2014-06-24b.172.5&s=%22corporation+tax%22+investment+speaker%3A11145#g173.1

• In 2017, the Conservatives tweeted that “lower corporation tax leads to more money for public services.”

August 2017, https://twitter.com/Conservatives/status/895996636836515841

• In 2015, the Conservatives tweeted that Labour’s plans to raise corporation tax “could cost almost 100,000 jobs.” (liked by the current Home Secretary).

March 2015, https://twitter.com/Conservatives/status/582882188670140416

• During his campaign to be Tory leader, Boris Johnson claimed that “every time corporation tax has been cut in this country, it has raised more revenue.”

July 2019, BBC News, https://www.bbc.co.uk/news/business-48885496

• Sunak was asked on the BBC if he believed cuts to corporation tax lead to higher revenue, with the Chancellor saying any rise in revenue concurrent with rate cuts was due to cyclical changes in company profits.

“over the past several years, corporation tax receipts have risen as the corporation tax rate has come down, but the vast majority if not all of that increase…is probably more likely due to the cyclical recovery in corporate profits.”

• He also said “‘we haven’t seen a step change in the level of capital investment that businesses are doing as a result of those corporation tax cut decreases.”

4^th March 2021, BBC Radio 4, Today Programme, https://www.bbc.co.uk/sounds/play/m000srdv