Slash corporation tax to boost economy, says Truss taskforce
SLASHING corporation tax would deliver a long-term boost to the UK economy worth 3 per cent of GDP, a taskforce set up by Liz Truss has said.
In a report to be published in the coming week, the Growth Commission will claim that the Treasury has “exaggerated” the cost of cutting the tax because it has not carried out sufficiently sophisticated modelling.
The Growth Commission, which was founded by the former prime minister during the summer, will publish a report on Tuesday aimed at providing an alternative prospectus to Jeremy Hunt’s Autumn Statement, which is due on Nov 22.
The Growth Budget report is based on “dynamic modelling” that assesses how economic policies affect decision-making by people and businesses.
It follows claims that official forecasts are prone to overestimating the loss of revenue to the Treasury from tax cuts because they do not take into account their potential to spur additional economic activity.
An extract of the report seen by The Sunday Telegraph says that “the
headline rate of corporation tax remains hugely important for driving footloose investment”, pointing out that foreign direct investment in low-tax Ireland is 285 per cent of GDP – four times the EU average.
The report proposes that Rishi Sunak’s increase in corporation tax from 19 per cent to 25 per cent last April should be “reversed next year and that in the long-term the rate is reduced to 15 per cent”.
It continues: “We believe that the HMRC assessment of the costs of such a change are exaggerated, since the scale of the behavioural impact on companies that they model understates the scale of the impact we expect.”
The report simulates bringing in the 19 per cent rate next year and 15 per cent in 2035, as well as making permanent “full expensing” – the policy introduced in March that allows companies to write off the cost of investments.
According to the modelling, such a package would result in a 0.1 per cent uplift to GDP in 2026-27, a 0.4 increase by 2027-28 and would push GDP 3 per cent higher by 2043-44.
However, the analysis suggests that tax receipts from such a move would still be marginally lower in absolute terms compared with if the status quo is maintained. The Growth Commission said that it would be a price worth paying for higher growth.
Shanker Singham, the co-chairman of the commission, said: “We are stuck with low growth if we aren’t ambitious about what can make a difference to our country’s growth prospects in the longterm. The Government needs to break out of the relentless cycle of high tax and spend.”
A Government source told The Telegraph that the Autumn Statement “is all going to be about growth”.