The UK Government’s aggressive Corporation Tax cuts are costing the UK more than £5 billion a year, meaning that the funding is required from elsewhere in the Budget in the face of spending cuts.
In the year 2016/17, businesses will pay almost £8 billion less Corporation Tax a year after the UK chancellor George Osbourne pushes through the largest reduction in the burden of corporation tax in our nation’s history. Already, rates have been smashed by a quarter and will decrease further to 20% next year. This is what the Treasury calls a ‘central part of the Government’s economic strategy’. However, at a time when spending cuts are having an impact on society, many are questioning the decision.
Richard Murphy who advises the Trades Union Congress on taxation says he is unconvinced of the strategy as some multinational companies such as Fiat want to move their holding companies, but few jobs or operations over to Britain. He said:[quote] “It is attracting financial relocations but not much underlying investment and employment. The cost of achieving it is very high.” [/quote]
One party who opposes the cut is the Labour party. It announced that it would scrap the cut should it come into power at next year’s General Election. Labour shadow chancellor Ed Balls said:[quote] “The purpose of a competitive tax system must be that companies view Britain as a great place to do business, not simply a cheap place to shift their profits.” [/quote]
The impact of the UK’s corporation tax cuts is uncertain, however it is expected to bring in £41.1 billion this year, down £6.9 billion from what was expected four years ago. The Treasury has dismissed criticism that tax was the only factor that companies would consider when relocating to Britain, citing skilled work forces and a world-class research base.