{"id":15033,"date":"2012-04-15T12:34:49","date_gmt":"2012-04-15T11:34:49","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=15033"},"modified":"2012-04-15T12:34:49","modified_gmt":"2012-04-15T11:34:49","slug":"why-the-uks-biggest-companies-did-not-need-a-2-tax-rate-cut","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/04\/15\/why-the-uks-biggest-companies-did-not-need-a-2-tax-rate-cut\/","title":{"rendered":"Why the UK’s biggest companies did not need a 2% tax rate cut"},"content":{"rendered":"

Amongst the few items in last month's budget not, so far, subject to retrospective Tory regret about the\u00a0incompetence\u00a0in the thinking behind it was \u00a0the 2% cut in \u00a0the large company corporation tax rate<\/a> introduced for this current financial year. \u00a01% of this had already been scheduled in earlier budgets, add another 1% was added in March.<\/p>\n

Perhaps of all the budget measures this though was the \u00a0most unnecessary and economically incompetent. As the Observer points out this morning,<\/a> \u00a0the Ernst & Young Item Club now estimate that Britain's large companies are\u00a0sitting\u00a0on a cash pile that between them that amounts to \u00a0\u00a3750 billion. \u00a0To put that enormous number in context, \u00a0it is enough to fund the budget deficit from 2008-09 to 2014-15\u00a0inclusive (\u00a3761 billion in all on\u00a0current\u00a0forecasts). In fact, that of course is how that deficit is being paid for, \u00a0at least in part. \u00a0Rather than invest large companies are simply lending their cash to the government. \u00a0And they have so much excess cash at present that the sum in question amounts to almost 50% of current GDP.<\/p>\n

There are two points to make about this. The first is the very obvious vote of no confidence that this represents in George Osborne's economic strategy. Businesses are not investing here because they have no faith in the prospect of economic growth which he said he can deliver, but which they do not believe.<\/p>\n

Secondly, and a lot more importantly, when large businesses are sitting on this amount of cash then there is no way on earth that they are short of money to fund any investment that they want to undertake. Far from it, they are awash with the funds needed to invest, but are refusing to undertake it. As a consequence \u00a0a cut in the corporation tax rate to encourage investment will achieve no such goal. \u00a0It is not the current tax rate that is stopping big business investing in the UK, \u00a0it is \u00a0the lack of confidence big business has in George Osborne that is stopping that.<\/p>\n

In that case \u00a0the consequence of this tax cut is that it will\u00a0simply add to the cash pile of large companies, \u00a0giving them more than \u00a3400 million this year to tuck away<\/a>\u00a0(page 50), and much bigger sums in years to come, \u00a0none of which, however, they have any intention of investing at this point of time.<\/p>\n

The net consequence of that is disastrous. First, it increase the wealth gap in the UK \u00a0by giving away a wholly unnecessary tax cut to big business which is largely owned by the top few percent in society. It also denies the government essential revenue that is needed to close the deficit. At the same time it increases the savings gap which we have in our current economy, where the massive growth in net savings since 2008 without any matching \u00a0increase in investment is one of the major causes of our economic crisis, the rise in unemployment, and the despair that most people face.<\/p>\n

It's another massive Osborne error.<\/p>\n","protected":false},"excerpt":{"rendered":"

Amongst the few items in last month’s budget not, so far, subject to retrospective Tory regret about the\u00a0incompetence\u00a0in the thinking behind it was \u00a0the 2%
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