I've published a blog this morning on George Osborne's £10 billion giveaway a year to big business. That's based on the amount of tax that between now and 2019 he is giving away in tax breaks to big business meaning that the tax they pay is likely to fall over that period.
I think the split of corporation tax paid between big and small business over the coming years will look like this:
Now note what's happening. Big business is paying less. And I may be generous here: the FT is trumpeting this morning that big companies saw their tax bills fall by 25% last year. But small business is going to pay a lot more. OK, I accept that it is thought that there are going to be a lot more small businesses but the fact remains that only one sector is getting a tax break and that's big business.
And yet big business already has access to all the capital it needs; indeed it's reported to be sitting on hundreds of billions in cash.
And big business already has all the advantages of access to markets.
And big business does not generate new jobs in the UK, small business does.
But it's big business that is getting the breaks.
Why does George Osborne dislike small business so much? Maybe someone should ask him.
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“Simples” – to quote the meerkat – small business doesn’t send wodges of dosh in the direction of the Tory party, as do the captains of big business! And to add injury to insult, they “buy” themselves peerages, and are then wheeled in to pass appalling, class warrior, legislation, like the Gagging Law, and the Benefit cap.What’s not to like in our venal, corrupt Establishment?
In the current British political system, he who pays the piper calls the tune. Big business donates millions to the Tories every year, so they get huge tax cuts in return. Small businesses donate v little (OK so there are some loony right wingers among the ranks of the small business community who are probably donating to the Tories but they are dwarfed by the multinationals), so they get nothing. Crony capitalism in action!
As a small business owner. Corporation tax isn’t the issue whilst running my company. The big issue is the Business Rates which affect me every month. Its stopping my company growing because we cant the financial risk, with them so high. These rates tripled over the past 15 years.
I have a lot of sympathy with that
Just looking purely at the mechanics of it, do these figures use the defintion of “large” which determines whether a company qualifies for the small companies’ rate?
If so, as that definition is based on profits, when profits are declining due to recession you would have at least some companies shifting from “large” to “small”. This would take their tax liability out of the top line and add it (or a slightly smaller version of it) to the bottom line, even if no changes are made to the tax system.
Is that factored into the numbers above?
If not, I’m struggling to think of a recent CT measure which penalises small companies particularly, whatever the effect of measures affecting larger ones. Most of the restrictions of small businesses have been aimed at unincorporated ones (partnership loss relief, and so on). The worst I can thnk of for CT is restricting the AIA, but that was very temporary and is probably too recent to be reflected in numbers to date – and has of course been more than reversed.
One can understand the large comapny line going down, what with the 30% rate decreasing, but the way that the small company line keeps going up with a broadly flat 20% seems very odd – unless it’s just that there are more small companies. Which of course there are, what with CT being so much lower than IT.
Are similar numbers available which could show some sort of average effective tax rate? Total taxable profit, for example?
Yes, that is a factor, but a tiny one
The split has remained remarkably consistent in terms of numbers which when it occurs at £1.5 million or below is unsurprising
You are clutching at straws
And it is not small business being penalised as such, it is big business running riot
I’m not clutching at anything, I’m just wondering what mechanic has driven the small company line up, in the absence of any increase in tax rate or tax base.
If you know how an effect occurs, you are much better placed to work out why it does.
The number of companies is clearly a factor: I agree
But the number of ones taxable is far removed from the number existing
And there’s also the number who admit nothing to take into account
This may explain why the larger companies pay less tax. A reduction from 30% to 21% in the main rate in eight years for the bigger companies (those with profits in excess of £300,000)compared to a 1% increase over the same period for smaller companies.
Thank you Osborne, Darling and Brown!
2014 2013 2012 2011 2010 2009 2008 2007 2006
Main rate 21% 23% 24% 26% 28% 28% 28% 30% 30%
Small profits rate20% 20% 20% 20% 21% 21% 20% 19%
It sure helps
But reducing the tax base by letting these companies flee offshore helps too
That’s clearly a major driver in the reduction in the large company tax take.
Looking at the graph, from 2006 to 2011 we have a fifth knocked off the tax rate, but tax only drops from £25bn to something above £20bn (depending which line you look at), so has gone down by less than a fifth. So evidently something is going on there which is working against companies (but not enough to offset the benefit of the rate reduction), but unfortunately we’d need more data to work out what.
Capital allowances
Good point. Since the AIA came in as a part compensation it tends to hit large companies more than smaller ones.
Why exactly is the CT take from small companies expected to rise Richard? More of them is one obvious reason, but what others?
I have no clue bar increasing numbers – but the government is forecasting it will
Ask the OBR
I used their data as the basis for this work
Some thoughts (mine I’m afraid, so probably not very clever):
1. If I read you correctly the historical data is from the OBR; extrapolation is your’s. So you “have no clue bar increasing numbers” as to why the rise, but you feel comfortable extrapolating by a 6 full years. OK.
2. The extrapolation, which I’m more than happy to accept is correct, is done simply by following the trend line (is that the OBR or you?) from 2000/01. Clearly you are assuming no change in present fiscal policy and you are also assuming that the trend established 14 years ago and followed through the tenures of two Labour chancellors and one Conservative chancellor will continue. And yet your title is “Why Does George Osborne Dislike Small Business So Much?” when the evidence you use would indicate an identical attitude to his immediate Labour predecessors.
3. I do agree in outline with your statement “And big business does not generate new jobs in the UK, small business does”. Could you point me to any papers supporting my, our, view?
4. Your argument that he hates small business is based upon the tax breaks you say he is giving solely to big business. Must be, because you make no mention of any direct anti-small business measures. So the ‘compare & contrast’ graph and narrative is based upon small business being disadvantaged by the breaks going to big business. That must mainifest itself in pricing advantages, ability to pay qualified staff better wages etc. Again, I welcome this clear statement that these effective cuts in CT liability are being passed on to customers and staff, although this throws us back into the area of Incidence of Tax doesn’t it.
Note my reply to Tyler, just now
My assumptions are extraordinarily generous
Re small business – look up ‘The Entrepreneurial State’
Your point 4: tax breaks going to big business should not themselves result in small businesses paying more tax. If as a result of their tax breaks big businesses get pricing advantages and better staff, for example, then they would outcompete the smaller businesses and so the profits of smaller businesses would decline, leading to a reduced take from small businesses.
If small business tax is increasing then one of three things must logically be true:
1) Their tax rate is increasing
2) They are getting fewer reliefs or more add-backs
3) There is more underlying profit
Of these:
1) is manifestly not the case (1% either way is immaterial)
2) does exist, to the extent that capital allowances have been reduced, but bearing the AIA in mind I would expect the impact to be small
3) I don’t know about. Is it more profits per company, or more small companies? If it’s more companies, is it large companies shrinking or businessses incorporating?
It would be interesting to see the same graph for unincorporated businesses, though I imagine the data might be hard to come by and it would be tricky to exclude the effect of rate changes.
I am not saying tax breaks to big business result in small business paying more tax
I am saying that it means big business pays less
The small business tax increase is as I noted consistent with self assessment i.e. with unincorporated businesses
You are seeking to find something that is not there as far as I can see
My reply is to Ironman’s point 4, not to you directly.
I thought your graph was about corporation tax? In which case, what has it to do with unincorporated businesses? They would by definition not have any impact on the figures.
Sorry, hit “post” too early.
What I’m seeking is the explanation for the small company total CT receipts going up so much. As those are actual figures there *must* be an explanation.
Once we’ve established why they have gone up from 2000 to 2013, we can then work out whether the forecasts need to be adjusted – if say the factors influencing the historic rise are increasing or decreasing in importance.
There are more of them
OK, that means the overall question then becomes one of looking at the effective tax rates, rather than the total burden. Paying more tax because you’ve got more business is a problem most of my clients are actively seeking to create, not to avoid 🙂
Plus of course, for the graph the question is whether we expect the number of companies to continue increasing, as this would be the driver for the total tax burden going up as projected.
Go one then – do the data
But it does not get round the question – why is big business going to pay so much less
After all, my small business stats align with self assessment income so probably a correct extrapolation
Why not deal with the real issue?
When you say “self-assessment”, do you meant ITSA?
What interaction are you seeing between ITSA on unincorporated businesses and CTSA on small corporates? The two seem unrelated to me, unless you’re just saying that CAs apply to both equally.
I am using what evidence is available in OBR data
No more, or less
“There are more of them”
OK, so what does that have to do with tax breaks to big business? What’s the link you are trying to make? How does a tax break for big business impact on the ability of small business to grow and create jobs?
It doesn’t
The point is they are being taxed
Big business is not
Next?
Well, we can’t see that small businesses are being taxed individually, just that they seem to be if you take them en masse.
Clearly large businesses are benefiting from the drop in CT rates and this won’t feed through to small ones, but it makes the red line on your graph something of a red herring.
Thinking about it, if the large company burden is decreasing by less than the reduction in CT rates (which seems to be the case as I noted above), then that deccrease should reverse as soon as the CT rate stops going down, which will be next year.
The future upward trend would then seem to be due partly to capital allowances being reduced, so one question then is whether the AIA compensates small firms for the reduction in allowances or whether they are also losing out from it. Anecdotally I know I have a fair few small clients whose CA pools consist only of pre-AIA balances being written down, with all new expenditure being covered (excpet cars); I wonder how well this translates across the board.
In summary: reducing the CT rate from 30% to 20% benefits large businesses; does the AIA give a similar benefit to small ones? And even if so, is there a squeezed middle?
I can conclude only two things
One is you know little about international tax as you seem to ignore it
Two you know less about the limitations of statistics
You have wasted ample of my time
I’m not ignoring it, I just don’t see how it’s relevant here.
For large businesses, I could perhaps see that an increase in profit-shifting abroad might reduce the UK CT liability, but as the decrease is more than explained by the reduction in CT rate the more obvious inference would be that if anything profits are being shifted in here. Excpet that I don’t really see that these figures give us any evidence either way about profit-shifting – the report barely talks about levels of profit, never mind BEPS.
How do you think it impacts on small businesses, most of which don’t have international tax issues?
As for statistics: where am I going wrong? I’ve drawn no conclusions, I’ve only offered hypotheses that may be consistent with the stats – but I’ve explicitly stated in several contexts that the figures aren’t detailed enough to tell us one way ot the other. If that’s not recognising the limits of statistics I don’t know what is!
“How does a tax break for big business impact on the ability of small business to grow and create jobs”
“It doesn’t. The point is they are being taxed. Big business is not. Next?”
So you put up two extraploated trend lines together on a graph and tell us they bear no relation to each other(?)
Can I remind you of your headline: “Why Does George Osborne Dislike Small Business So Much”. What is there here that indicates he does? the only evidence you produce is that small business is not getting tax breaks. So this is a call for small business to get tax breaks/reduced tax rates? If so, why not say so? say
They are relevant for precisely the reasons I have given: they indicate a split of the tax take, one of which clearly indicates a benefit to big business that small business does not get
You added the wholly inappropriate interpretation
I’m sorry, but we keep coming back to that headline:
“Why Does George Osborne Dislike Small Business So Much?”.
If it is because big business gets a benefit that small business doesn’t get, then are you calling for small business to get that benefit as well? If so, how? How can he show that he doesn’t ‘hate’ small business?
And what exactly is this ‘benefit’? Is it a competitive benefit?
I am saying big business is getting an inappropriate benefit
And small business should note it
There is no level playing field
No level playing field.
So the benefit IS competitive then?
How is an unlevel playing field competitive
Do you know nothing of the theory of competition?
I despair
Oh for Heaven’s sake! Providing a competitive benefti to one party (big business) and not the other makes it an unlevel playing field. That is your point isn’t it? A competitive benefit provided to big business!
If not, then I ask again: how exactly has George Osborne shown he dislikes small business; how should he show he doesn’t?
But you miss the point – doing this is anti-competitive
Competition only works on a level playing field or you guarantee winners and losers
You clearly do not get that
Of course, the favouring of big business has been done by reducing their tax rate – but this is simply bringing their tax rate down to that of a small business. So if anything the recent changes have levelled the playing field by taking away an advantage that small companies used to have.
The unlevel field is then partly restored via the AIA, which favours smaller businesses.
I seriously hope you don’t advise businesses if this is how far your understanding reaches
Let me check Whillans again – nope, as I thought, the small companies rate definitely hasn’t been higher than the main rate in the last 15 years.
I think that having a higher tax rate for some companies is an unlevel playing field. Why do you consider that eliminating this difference is actually making the field less level?
The higher tax rate was to compensate for the fact that big business has always had access to lower costs of capital
Don’t you realise that there is more to tax than the rate? And more to tax policy than superficial issues?
I’m tax advisor: I leave economics to the economists and policy to the politicians.
What you’re saying then is that the tax position has always been unlevel, but what you’re actually complaining about is that non-tax factors like cost of capital are unlevel too. So this isn’t an issue of tax fairness at all.
The way to resolve the unlevel cost of capital would be look at some way of providing cheaper finance to SMEs, but not being an economist or politician I’ll keep out of that debate. Although I do seem to recall hearing something about that being set up recently…?
If you’re a tax adviser why get involved on issues you clearly know nothing about?
You were apparently talking about tax, and I thought there might be some interesting conversation to be had about why the figures are as they are.
As it turns out that you were actually talking about cost of capital, and the graphs and other mentions of tax are simply red herrings, I shall bow out.
I was talking about tax systemically
I almost always do
That is what the political economy of tax is about
That is what I write about
You probably don’t care.. but illustrating this as a total for all companies, and not an average, is an affront to all of us who work with data. It is utterly meaningless unless you adjust for the size of the population in each group, and even then you should be adjusting for average size as well.
We know that a large companies CT responsibilities have reduced. This has happened intentionally (via the rate cut) and is happening unintentionally (and/or by omission) through the evolution of avoidance strategies. Although the economic situation obviously has the power to hugely distort your blue line, I can’t imagine that a properly adjusted data set would disagree with the shape of yours (not that this is a good reason not to bother with one).
The red line, from which you seem to draw your headline attack on Osborne, doesn’t seem likely to be representative at all. If I run a small business making a steady £100k a year profit, then I am not paying 4 times as much tax as I was in 2001. If the tax take has quadrupled then it’s either because the small businesses from 2001 are doing four times as well, or because there are four times as many of them. Or, as is likely, a combination. Either way, those small businesses probably quite like the various inhabitants of No11 during that time.
This comment, like many others here is both absurd and completely fails to comprehend what I have done
I took OBR data, not mine, and sought to explain why that for corporation tax is so different from other taxes
The OBR data is a total. That’s it. So that’s what I had
I took a com
Not roll variable, big business, which are relatively fixed in number and where there is a clear trend which we know if anything should increase ( but for which I generously did not allow) and extrapolated a known trend for which reasons are clear to suggest a split if the likely total the OBR had given. That’s completely data consistent and utterly logical
I then pointed out that this means small business will have to make a considerable extra contribution to the economy according to the OBR – something they also think of the self employed which corroborates my suggestion
That is completely reasonable
To say otherwise is absurd
I then suggested what this meant,ban interpretation that statistics can bear
Many small businesses, I know, support the sentiment and wonder why only big business gets the favours
So when people produce graphs to show how the proportion of income tax paid by the highest earners has increased over the years, are you happy to draw the conclusion that the various governments ‘hate rich people’? Or would you point out that those rich people have also captured a far greater share of income upon which that tax is rightly paid? And that, therefore, their share of the tax take is, in itself, not a helpful number?
I appreciate that you can only work with the data available to you – but that doesn’t mean you should draw conclusions that it does not support. That just shows that you set out to make a particular point, and found the best dataset you could. Unfortunately, it was still a useless dataset.
So you deny big business has had all the tax breaks?
How very odd
I haven’t denied anything about big business.
I am trying to debate what you’ve actually said. It’s a shame you won’t extend me the same courtesy.
All you have taken exception to is me saying George Osborne dislikes small business on the basis of yhe evidence that he has given almost all practical favours to big business
I think my comment grounded in fact
You don’t – narrowly basing it on a graph when I haves onside red a great deal more apparent within the ongoing narrative of this blog
That’s the difference
You ignored the evidence
I considered it
Right, so you ARE saying that the favours, as you call them, given to big business is anti-competitive, i.e. Giving it a competitive advantage over small business. And we both believe such an advantage isn’t right!
However – and here I go right back to the beginning I the tax/competitive advantage is brought to bear by big business taking the money from the tax break and, as well as paying out bigger distributions, cutting prices, investing in products and processes, hiring talented staff by paying them more.
Incidence of CT?
Prof Kimberley Clausing has resoundingly resolved that issue
And as for your claims on the consequence of the tax cut for big business – there is not a shred of evidence for them
There us just a pile of unused cash and executive bonuses
In which case please don’t waste my time again