Labour Corporation Tax Policy
Discussion
Listening to Radio 4 this morning, the Labour spokesman said that they would put Corporation Tax back up in order to pay for their spending pledges including NHS pay increases, university tuition fees etc.
I decided to spend 10 minutes establishing, from ONS data, whether this was a coherent money raising proposal and I set the result out below.
Essentially, Corporation Tax revenues as a percentage of GDP are at approximately the average of the last 45 years, higher levels are as a result of economic booms and there is a ~0.5 negative correlation with the standard tax rate, so if they put the rate up, tax revenues as a percentage of GDP should go down, likely at the same time as GDP stagnates or decreases due to the policy.
This means that, in 10 minutes, I was able to clearly establish, with independent statistics, that their proposition is rubbish. Untrained monkeys would have a more coherent policy.
I decided to spend 10 minutes establishing, from ONS data, whether this was a coherent money raising proposal and I set the result out below.
Essentially, Corporation Tax revenues as a percentage of GDP are at approximately the average of the last 45 years, higher levels are as a result of economic booms and there is a ~0.5 negative correlation with the standard tax rate, so if they put the rate up, tax revenues as a percentage of GDP should go down, likely at the same time as GDP stagnates or decreases due to the policy.
This means that, in 10 minutes, I was able to clearly establish, with independent statistics, that their proposition is rubbish. Untrained monkeys would have a more coherent policy.
Edited by loafer123 on Wednesday 26th April 08:43
John145 said:
From that graph alone it looks as though below 35% tax rate there is no correlation. Therefore may as well hike it up to 35%.
For what purpose if it doesn't increase the tax take? Envy tax?If there is no correlation up to 35% (i.e. the tax take stays flat) - then a negative correlation above 35% (i.e. the tax take goes down) - then surely Labour's proposal for an increase in corporation tax to pay for the NHS is clearly b
ks. Whatever they increase it to - won't bring in any more money.If the "no correlation" holds below 20% - then we might as well lower corporation tax. Why tax a company more than needed?
We also need to consider is whether a lower corporation tax rate has other benefits outside the simple tax take as a % of GDP? For example - does it encourage more companies to settle here (and therefore employ more people who pay income tax and NI etc?). Even though the corporation tax take may be flat - there may be other economic benefits related to having a low (or even lower) corporation tax threshold.
Edited by Moonhawk on Wednesday 26th April 09:17
The reduction in CT for business by the Tories is outweighed by the cost of workplace pensions and the dividend tax.
I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
PurpleMoonlight said:
The reduction in CT for business by the Tories is outweighed by the cost of workplace pensions and the dividend tax.
I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
What's the difference between a large company paying CT on its taxable profits and it's share?I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
Moonhawk said:
John145 said:
From that graph alone it looks as though below 35% tax rate there is no correlation. Therefore may as well hike it up to 35%.
For what purpose if it doesn't increase the tax take? Envy tax?If there is no correlation up to 35% (i.e. the tax take stays flat) - then a negative correlation above 35% (i.e. the tax take goes down) - then surely Labour's proposal for an increase in corporation tax to pay for the NHS is clearly b
ks. Whatever they increase it to - won't bring in any more money.If the "no correlation" holds below 20% - then we might as well lower corporation tax. Why tax a company more than needed?
We also need to consider is whether a lower corporation tax rate has other benefits outside the simple tax take as a % of GDP? For example - does it encourage more companies to settle here (and therefore employ more people who pay income tax and NI etc?). Even though the corporation tax take may be flat - there may be other economic benefits related to having a low (or even lower) corporation tax threshold.
Edited by Moonhawk on Wednesday 26th April 09:17
PurpleMoonlight said:
The reduction in CT for business by the Tories is outweighed by the cost of workplace pensions and the dividend tax.
I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
Agree in principle but how do you do it in practice because nowhere in the Western world has it been achieved as it's all too easy for MNC's to shift profits legally beyond company borders. In my opinion corporation tax in its current form is no longer fit for purpose, in fact you inspired me to post my thoughts on it on the Finance board!I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
SunsetZed said:
PurpleMoonlight said:
The reduction in CT for business by the Tories is outweighed by the cost of workplace pensions and the dividend tax.
I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
Agree in principle but how do you do it in practice because nowhere in the Western world has it been achieved as it's all too easy for MNC's to shift profits legally beyond company borders. In my opinion corporation tax in its current form is no longer fit for purpose, in fact you inspired me to post my thoughts on it on the Finance board!I was happy with 20% CT. It seemed fair and reasonable. It just needed enforcement on multinationals not paying their share.
The only thing I feel I have really benefited from is the NI allowance, now £3000 pa. That covers most of my employers NI liability.
Rates is the killer though. I'm a small business but want a larger building so I get no rates allowance. The cost is 5% of my turnover.
I heard that interview. When asked about the other 6 or 7 spending promises that other Labour MP's have talked about also being paid for by a CT rise he had no answer, other than to waffle along the lines of 'it'll be in the manifesto next week'.
In other words, we've been thinking about lots of sexy ways to spend more money, but haven't worked out how to fund them all yet. Sound familiar?
The other fundamental 'miss' with the whole proposal was that, by general consensus (I thought), we need to make investing in UK companies more rather than less competitive in the global market. How much inward foreign investment to Labour honestly think they'll secure once the wider world twigs that the UK's trend in CT rates is likely to head back upwards?
In other words, we've been thinking about lots of sexy ways to spend more money, but haven't worked out how to fund them all yet. Sound familiar?
The other fundamental 'miss' with the whole proposal was that, by general consensus (I thought), we need to make investing in UK companies more rather than less competitive in the global market. How much inward foreign investment to Labour honestly think they'll secure once the wider world twigs that the UK's trend in CT rates is likely to head back upwards?
SunsetZed said:
Agree in principle but how do you do it in practice because nowhere in the Western world has it been achieved as it's all too easy for MNC's to shift profits legally beyond company borders. In my opinion corporation tax in its current form is no longer fit for purpose, in fact you inspired me to post my thoughts on it on the Finance board!
Robust enforcement of the BEPS (Base Erosion & Profit Sharing) provisions that are beginning to come in, that's how. Assumes, of course, that HMRC are capable of said robust enforcement . . .
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