It was reported after last week’s budget that the Institute of Fiscal Studies had warned of potential tax rises of up to £9bn that might be imposed after the next general election to limit further cuts in public spending. It’s intructive to note that whenever the media report on these issues the assumption is usually made that such tax increases will take the form of rises in income tax or VAT.
But why not debate the role of corporation tax? We’re now heading for one of the lowest rates in the developed world. At its peak, in 1973, the rate was 52%. The United States still operates a rate of 40%. This ‘race to the bottom’ not only deprives the Exchequer of much-needed revenue, the further reduction of corportion tax to 20% in 2015 is expected to cost £750m, it also shifts the tax burden to those least able to afford it. Businesses rely on Government to provide the enabling factors which underpin their ability to operate, including a transparent legal framework; a healthy, skilled workforce; and an effective transport and communications infrastructure.
The recent cuts in corporation tax should be reversed for the biggest companies. And Labour should seriously consider reviewing its tax policy to consider how best to return to a more equitable, progressive tax system.