'Corporation tax cuts don't create jobs'
The report, Corporate tax reform and competitiveness, challenges a central plank of government policy. It draws on data from more than 60 OECD countries between 1997 and 2010 and finds no strong link between low taxes and high growth in employment or GDP. And it says it's likely many multinationals now pay a lower rate of corporation tax than UK small businesses.
Competitive rateThe rate of corporation tax in the UK, says the report, is extremely competitive. PriceWaterhouseCoopers estimate the effective corporate tax rate for large companies is currently 23.2%, lower than the OECD average of 26.5%. Previous TUC research estimates the actual rate is even lower, and that it has been falling by 0.5% a year for a decade.
"Cutting corporation tax to attempt to stimulate growth is a poor economic strategy," says the TUC. Not only is it poor, argues the report, the government's strategy damages the economy by encouraging tax avoidance and the channelling of profits outside the UK.
New rules on dividend payments mean that any dividends paid by foreign subsidiaries to UK parent companies will not be subject to UK tax. That both encourages firms to shift profits away from the UK and damages the prospects of developing nations collecting the tax due to them.
Shouldering burdenCorporate tax receipts are expected to fall as a proportion of the total tax take from April 2012. And 15,000 jobs are to be cut across HMRC. That will make it harder to monitor the outflow of profit at a time when ordinary taxpayers are shouldering a proportionally greater tax burden and being hit by spending cuts.
TUC General Secretary Brendan Barber said: "The more that big businesses and the super rich avoid paying their fair share, the more ordinary taxpayers will have to pick up the tab through tax rises and reduced public services."
Predictably, the report has come in for some fierce criticism. 'Look what low tax rates have done for other countries', they say. Other countries such as, er, Ireland. Or maybe the Cayman Islands.
ProfitsAs Richard Murphy says: "Low tax rates don't induce people to move where they trade or where they employ people: they induce people to move where they record their profits. That's something very different indeed... Low tax is simply associated with states with low GDP, under achievement or failing government or failing economies."
Murphy also points out why countries such as France and Germany "make such a fuss" over this. "It's not that this activity takes their business away: what these tax havens do is take away their tax revenues: the very tax revenues needed to support the infrastructure, training, and private poverty rights that make those profits possible."
What it all comes down to is ideology. Either you think companies should pay a fair rate of tax where they use labour and resources to do business. Or you think they shouldn't. The current UK government clearly believes the latter, but has to dress that unpalatable belief up with arguments that don't stack up.