LONDON (Reuters) – Britain’s low headline rate of corporation tax has failed to boost business investment, which lags behind that of all its major peers, according to a report on Tuesday which comes as the government prepares to reverse a planned rise.
Britain’s 19% corporation tax rate – the lowest in the Group of Seven (G7) large, rich nations – had been due to rise to 25% in 2023 under plans announced last year by former finance minister Rishi Sunak.
However, opposing the rise formed a major part of Liz Truss’s successful campaign to defeat Sunak in the contest to succeed Boris Johnson as Conservative Party leader and Britain’s prime minister.
New finance minister Kwasi Kwarteng is expected to confirm this in an emergency fiscal statement on Friday, where he gives more details about Truss’s plan to support the economy in the face of surging energy bills.
Truss said during her campaign that keeping corporation tax low was vital to attract investment, but a report from the Institute for Public Policy Research (IPPR) showed past reductions in the tax rate had not led to more investment.
Britain cut its headline rate of corporation tax rate from 30% in 2007 to 19% in 2017, but in 2020 private-sector investment was the lowest in the G7 at 9.8% of gross domestic product. Across 31 mostly wealthy nations in the OECD, Britain had the fourth-lowest business investment in 2020.
“Slashing corporation tax is just a continuation of a failed race to the bottom that hasn’t delivered for the UK economy,” said George Dibb, head of the Centre for Economic Justice at the IPPR, which describes itself as a progressive think tank.
Headline corporation tax rates do not always give a clear sense of the overall business tax burden in a country, and some countries with high rates offer widespread exemptions.
Before he resigned as finance minister last month, Sunak had been working on measures to reshape business taxation to promote investment.
Low business investment is one of the main reasons economists give for poor productivity and very slow growth in living standards since the late 2000s.
Weak demand after the global financial crisis, followed by years of uncertainty over the consequences of Brexit, are among the reasons economists give for Britain’s poor investment performance, alongside difficulties measuring investment in some services industries Britain specialises in.
(Reporting by David Milliken, editing by Andy Bruce)
