UK Corporation tax cut of at least 2% is coming, making the UK the country with the lowest corporate tax rate in the G20, according to Prime Minister Theresa May speaking at Bloomberg in New York yesterday.
May said: “Whatever your business, investing in a post-Brexit Britain will give you the lowest rate of corporation tax in the G20.”
The UK’s current rate is 19%, above Switzerland (17.77%) and Singapore (17%), which have the lowest tax rate amongst the group.
How will lower corporation tax rates help?
Lowering corporation tax has always been a way to attract business to a country and companies can “shop” for a tax authority that offers the lowest rates.
May hopes by lowering corporation tax to pull companies into the UK, counter to Brexit uncertainty currently pushing businesses away.
Theresa May’s economic aims for Britain
Theresa May seemed to hint at the problems of regulation and enforcement when she spoke at Bloomberg.
She said: “As governments we have played our part by agreeing and abiding, by a global framework of rules and by opening up our economies to competition.”
She continued: “[We] look at some of the tensions in global trade today and ask whether the rules-based system can be really adapted to reflect the realities of the modern world.”
Commenting on her promise for lower corporation tax she said: “We also have a plan to deliver an economy that is knowledge-rich, highly innovative, highly skilled, and high quality, but with low tax and smart regulation.”
At the Labour conference, the opposition leader Jeremy Corbyn said: “The Prime Minister is in New York today promising that a post-Brexit Britain will offer the lowest corporation tax of all the G20 nations. Handouts to the few, paid for by the many and an already tried-and-failed strategy for boosting investment.”
Director at the Tax Justice Network Liz Nelson said: “Many people have been fooled into thinking that cutting corporate taxes obviously must make a country more tax ‘competitive’. The opposite is likely to be true. The tax ‘competitiveness’ ideology falls apart once you examine it. The corporate tax is not a cost to an economy, but a transfer within it: from one wealth-creating sector (corporations) to another wealth-generating sector, government, which creates and protects wealth through education, roads, courts, police services and so on.
“Corporate tax cuts carry multiple and diverse costs that hurt national welfare, and cause immense leakage: a large portion of corporate tax cuts flow to foreign shareholders. Nor do corporate tax cuts generally attract much useful investment either. They tend to attract unproductive activity and profit shifting, avoidance nonsense: the least useful stuff.”
How has corporation tax changed in the UK?
UK Corporation tax has been lowered steadily from a rate of 30% in 2008 to 19% in 2018 and total net corporation tax receipts were a record high of £56bn in 2016-17.
The UK has tried to compete with the other G20 countries before for lowest rate of corporation tax, dropping to 20% in 2015.
Theresa May has already hinted in June 2017 the government would cut corporation tax to 17% in 2020.
Credit: Trading Economics