Tax experts urge rethink of UK plan to cut corporation tax
Chancellor Philip Hammond urged to hold off on further cut to headline rate to 17%
Britain’s chancellor of the exchequer, Philip Hammond. Photograph; Jeff Overs/BBC Handout via Reuters
Tax experts have urged UK chancellor Philip Hammond to “rethink” plans to cut corporation tax to 17 per cent by the end of the decade in order to free up £5 billion a year for other spending priorities.
When David Cameron became prime minister in 2010, the headline corporation tax rate was 28 per cent. Mr Hammond’s predecessor, George Osborne, repeatedly cut the tax rate to its current level of 19 per cent. In 2016 Mr Osborne announced plans to cut the rate a further two percentage points, to 17 per cent, in April 2020.
In his March budget, Mr Hammond underlined his commitment to reducing the rate further, saying cutting it to 17 per cent would send the “clearest possible signal that Britain is open for business”.
But now some tax experts say the chancellor should redirect the money earmarked for a corporation tax cut to tackle other policy challenges.
“I hope [the chancellor] does rethink,” said Bill Dodwell, head of tax policy at Deloitte. “Business welcomed the drop to 20 per cent. Nobody seems to welcome the cut to 17 per cent.”
The British Chambers of Commerce has also urged Mr Hammond to “pause” and keep the corporate tax rate at 19 per cent until after the UK leaves the EU. The lobby group has said that the resulting revenue could be ringfenced to ease other burdens on business.
Chris Sanger, global head of tax policy at professional services firm EY, said many companies were talking about the possibility of the corporate tax rate cut being delayed. But he said there would be negative reaction if the resulting funds were not redeployed to help business.
Mr Hammond is already expected to use this week’s budget to address concerns about business rates by switching next year’s increase in the tax for business owners from RPI to CPI, meaning the rate will go up by 3 per cent instead of 3.9 per cent.
But the chancellor is loath to abandon the “corporation tax road map”, fearing that a change of tack would breach a Tory manifesto promise and require the reversal of existing legislation. The treasury has sought to reassure business leaders in recent weeks that it is still committed to cutting the tax.
Some tax experts have said it would be a mistake to slow or cancel the rate cut, particularly as the US has plans to reduce its own corporate tax rate to 20 per cent.
“There has been speculation whether he might rein back reduction in the corporate tax rate,” said Stella Amiss, tax partner at PwC. “We don’t think he will. A slowdown would send negative signals.”
Jeff Soar, UK head of financial services tax at EY, said that companies were hoping to be “spared” any big announcements in the budget.
“With the ongoing market uncertainty Brexit has brought, a period of calm on the tax front would be welcome,” he said.
Mr Soar added that reversing any corporation tax cuts “would be an unwelcome move that would see companies having to recalculate their deferred tax provisions and would likely end up hitting their bottom lines”.
The gradual cuts in the corporate tax rate from 28 per cent to 17 per cent between 2010 and 2020 are estimated to reduce government revenues by at least £16.5 billion a year in the short to medium term, according to the Institute for Fiscal Studies think-tank.
However, some of the lost revenue will eventually be recaptured through higher investment on the part of businesses. In a 2013 report, HM Revenue & Customs suggested that within 20 years, 45-60 per cent of lost corporate tax receipts would be recouped as a result of higher investment and increased economic activity. – Copyright The Financial Times Limited 2017