POLITICS

Budget 2013: George Osborne's Corporation Tax Cut 'To The Sector That Needs It Least'

20/03/2013 15:45 GMT | Updated 20/03/2013 17:41 GMT

Budget 2013 live : Follow George Osborne's announcement here with our 'At A Glance' guide to all the big decisions on the economy.

Corporation tax in Britain will be among the lowest in the Western world, after the third cut in a row given to big business by Chancellor George Osborne comes into force in 2015.

The cut to 20% means that Britain will be more competitive than Luxembourg which taxes business 21% on profits, and have a tax rate far lower than most of Europe, apart from Ireland which has a rock bottom rate of 12.5%.

corporation tax

Will the corporation tax cut encourage big business to invest?

Tony Greenham, head of finance and business at the New Economics Foundation, told HuffPost UK cutting corporation tax to encourage investment was a theory which had been "discredited".

"Businesses are not investing. Is that because they need a tax cut or because they have no cash? No. Large corporations are not being taxed too much on their profits, they are not investing because they have no confidence in the economic prospects of this country.

"Cutting corporation tax will have no impact on that whatsoever.

"As a sector, big business do have cash piles which they do not want to invest. It means small businesses have no investors.

"If this government wants to give tax cuts to business they must be tied to economic investment in Britain.

"Attracting some flighty corporation to relocate its head office, a brass plaque outside an office in London instead of Luxembourg, is not going to create jobs in unemployment black spots in the UK, halt youth unemployment."

The cut is expected to cost the British economy around £750m, according to Deloitte.

Mark Serwotka, General Secretary of PCS, the trade union for British civil servants told HuffPost UK: "Added to the tax cut for millionaires from next month, Osborne showed us again whose side he is on with this extra tax cut for big businesses, while hard-working public servants face further pay cuts and job losses that will mean vital services to the public suffer.

"This should have been a budget for growth, but instead this failed chancellor has just offered more of the same old failed policies."

Banks will not directly benefit from the cut, which will be roughly cancelled out by bank levy increase of 0.142 per cent next year.

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Michael Wistow, head of tax at Berwin Leighton Paisner LLP, said Osborne was being unfair to the banks to attempt to exclude them from corporation tax cuts.

He told HuffPost UK: "The Government is kicking the golden goose again with this spiteful and populist move against UK banks. Banks need to increase their capital to enable them to lend many multiples of it to kick-start the economy.

 

"Excluding banks from any corporation tax reduction through increasing the bank levy conflicts with the Government’s stated aim of encouraging banks to lend. We need to put an end to banker bashing via the tax code, which is often counter-productive."

But Greenham told HuffPost UK that banks could still benefit. "We've always argued that the overall cuts in corporation tax that have been introduced by the government are worth more to the banks than the bank levy will reduce. But even if they do not, so what?

"This is not helping to fix a broken system, not discouraging them away from speculative activities into productive activities, it's not addressing the too-big-to-fail subsidy.

"Banks still continue to enjoy a very privileged position in the economy."

David Hillman, spokesperson for the Robin Hood Tax campaign, told HuffPost UK the offsetting of the bank levy against the cut in corporation tax was being "soft on the banks".

"Meanwhile Osborne boasts of cutting financial transaction taxes when he should be supporting European proposals that could raise billions from such taxes. Protecting his friends in the City while cutting services for the rest of us is nothing to be proud of."

Corporations argue that the cut will simplify the tax system and encourage businesses to the UK, at a small cost to the Treasury's coffers.

Deloitte's tax partner Bill Dodwell told the Guardian that the move was "relatively low cost and should encourage more companies to base their businesses in the UK."

Simon Walker, Director General of the Institute of Directors, said: “We applaud this budget. The Chancellor has stuck to his guns and held his nerve - which is exactly what we wanted to see.

"Businesses will be glad that George Osborne has continued the downward pressure on Corporation Tax. Britain must become the most competitive place to do business, and lower taxes will attract welcome investment from abroad.

Wistow said that for business, the corporation tax cut "can only be good news, and to have an emphasis on reduced tax rates which result in the rich paying a higher proportion of total taxes raised than the populist concentration on rates of tax."

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