George Osborne has said he wants to cut corporation tax to 15% post Brexit.
Politically this is interesting. He has not given a timescale: planned cuts to 17% are already deferred. A cut way in the future will have little impact. Without any indication as to when this will happen it is virtually meaningless.
It is also something of a hollow gesture when the chance that Osborne will be Chancellor is September looks to be very remote indeed.
He could, of course, amend the current Finance Bill. If he did so that would, however, look like a poisoned chalice for his successor. Do the Tories really want that from a lame duck Chancellor whose policies are being abandoned, rapidly?
The chance that this will actually happen under his guidance does then look to be remote. It looks like a last desperate gesture.
It is also desperate for tax reasons.
Reducing the corporation tax rate does, of course, massively increase the return to tax avoidance when even the basic rate of income tax is 20% and one can be a substitute for the other in our tax system.
Worse though, it may not work to attract business. With country-by-country reporting in place any company that artificially relocates profits to the UK to exploit this new tax rate can easily be identified by its home tax jurisdiction, and therefore be subject to challenge. Most tax cuts in the past have not been subject to such challenge: now that they are George Osborne shows that he does not understand the risk to companies now of being seen to go near low tax jurisdictions in any way that looks artificial. The risk to them will be real.
It is for this reason that a partner at Slaughter and May said at the FT Festival of Finance last week that she could see no advantage to a corporation tax rate cut now: as she put it, it will have no impact on corporate decision-making because other factors are, by then, much more significant.
And as Vanessa Houlder, the FT tax correspondent pointed out at the same event, the claim that this shows that 'the UK is open to business' is just as hollow: the evidence that previous cuts have induced any significant new inward investment to the UK is very slim indeed.
In that case this announcement has to be seen in three ways. First it is Chancellor who knows that his power is waning trying to influence future events, probably in vain.
Second it shows how bankrupt Tory thinking on tax is.
Unless, thirdly, the purpose of this cut is to increase opportunity for tax avoidance and to increase inequality at the same time, as those who can exploit this to avoid tax will be, by definition, those in the wealthier part of the population.
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Brexit opportunism, first they get to cancel targets they would have missed no matter what. Now they get to claim that further bribing of the wealthy is needed to keep/attract them here. The MSM is so on side that all of this hasn’t been met with the derision and guffaws it deserves. Instead we get pictures of Osborne with a permanent smirk making him look even more punchable than usual.
Well at least they’ll be eviscerated by the opposition – nope, the PLP decided now was the time to hit the nuclear button and give the Tories/right a free reign.
More cuts, lower taxes at the top, starve them into submission.
The third option is consistent with the Tory mentality in my view.
Forgive me for sounding cynical but I suspect the scenario envisaged in the final paragraph is entirely the intention. I wouldn’t be surprised if tory leadership contenders start touting abolition of corporation tax.
This sounds like the desperate splashing around of a man drowning in his own failure and incompetence. Perhaps he wants one , last, futile act of incompetence to frame his pre-existing incompetence.
Failure, incompetence? – he’s been remarkably successful and on point, just because you or I measure success and progress differently doesn’t matter.
You are, of course, spot on with that statement. He has been a resounding success for the 1%.
I’m no tax expert but from a political perspective one must assume that desperate people do desperate things. The Tory party, par excellence, put power before people.
At this particular moment in history one can only expect & assume that every policy statement has only 2 objectives: first to promote the status of the issuer and secondly to promote electoral victory.
I really don’t know why anyone would ever expect anything else from a political party that is institutionally ‘top-down’. That is their DNA structure and will never change and which differentiates them from all progressive parties. It’s based on a militaristic hierarchical view of society. Off topic (apologies), but there was apparently a correlation to be found between people who would vote for capital punishment and those who voted to leave.
Osborne is a busted flush. It is quite irresponsible of him to make any future policy statements whatsoever. Unfortunately for the nation, the incoming team are seemingly economically illiterate too. You can expect a lot more talk about balancing the budget, deficit reduction, austerity etc. even though they won’t be able to deliver – except on austerity, of course. They know what buttons to push – see Chris Dillow’s blog yesterday – http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2016/07/cognitive-biases-ideology-control.html.
‘Tax cuts’ always resonate well with the business community. Whether they make any economic sense or not is irrelevant in terms of the message and the messenger. Wishing you a fruitful and peaceful week ahead. I will attempt to reduce comment in order to minimise your moderation time!
But the message is they don’t need this
So Osborne proposes a “punishment budget”, and says there is a black hole in the finances. Then he proposes a tax giveaway for the wealthy that will make that black hole worse.
It is a lovely present for anybody going out to negotiate new trade treaties. Aggressive tax competition may well have an influence on foreign Governments wondering how much more expensive they should make British products.
I like your line of thinking lionsafterslumber.
We should probably read every economic statement from the UK government between now and the final Brexit negotiation completion as (potentially) all part of stacking the negotiating team’s deck of cards in the UK’s favour.
The EU implied it would play hardball with the UK (for political reasons), all the nation states will just want to get the best deal they can for their own economic self interest.
It’s about time our diplomats and politicians actually had some proper negotiating to do!
It makes the attractiveness of our establishing a base in the EU for EU operations just that bit less attractive. As a company, corporation tax is just less money for spending on staff. They’re possibly going to need as much money as they can get in post-Brexit UK, so I don’t see a massive problem.
Yes, moving just to benefit from lower rates is seen as dodgy, but investment is a different thing.
There is a trade off
If this looks like dodging exprct a tougher time in other countries
Quite possibly, and another brake on the prospects of UK companies.
I suspect, however, that some other countries will be happy to see some of our business move to them. Especially that of the banks – EEA minus free movement minus MiFID II is the most likely option to end up being on the table for us. Works well with Leave voters (a chunk of whom not only hate foreigners but also hate banks as a whole) and loses us a whole heap of tax revenue.
When business reportedly has billions of pounds sitting around doing nothing at the moment because of austerity and the lingering effects of a USA induced 2008 crash on the world economy, I find this announcement by Osbourne totally astounding.
Unfortunately, by suggesting it as an idea, even if he will be toast in a short while, he makes it much more likely to pass & that the next Chancellor will announce it.
I have no doubt that Osborne’s successor (Leadsom?) will endorse this policy – because it has been very successful so far … not.
Why oh, why do corporate subsidies still even exist, as an unearned freebie? Unbelievable, its as though, being corporate is just like ‘citizens united’ —beyond the rational of common sense…..? But that must be, because we are still nation state to nation state –still quietly allowing corporations to be paid/or take, our tax dollars for what? Jobs? Nation state job-rates are crap…..Then its nothing,—- for all we work so hard for —While having to drop to our knees for programs and services,— we pay for,— all on our own……Stupid and asinine, comes to mind….But cutting any break for any corporation is way out of line…..enough…..