Pressure Mounts On Brown To Cut UK Corporate Tax

by Robert Lee, Tax-News.com, London

13 March 2006

With budget time just around the corner, private sector organisations are increasing pressure on Chancellor of the Exchequer Gordon Brown to cut corporate income tax to give the UK economy a much-needed boost in competitiveness.

As part of its 2006 Budget submission, the Institute of Directors (IoD) last week called on the Government to cut corporation tax by two per cent.

“The time is right to make a two per cent cut in corporation tax, we have made the calculations and there is clear scope to make this reduction," commented Miles Templeman, Director General of the IoD.

"The corporate tax advantages once enjoyed in the UK have slipped over the last few years and major economies such as Germany, France and Italy have all reduced their rates whilst ours has remained the same. The UK corporate tax rate is now above the OECD average. If we are to remain competitive we must act now," he argued.

The UK's corporate tax rate currently stands at 30 per cent. Calculations made by the IoD estimate that the two per cent reduction would cost GBP3 billion in 2007-08.

However, the IoD calculates that at least GBP2.7 billion of this can be found by simplifying tax rules and eliminating ten types of tax reliefs and expenditures. The remaining GBP300 million will come from the extra stimulus to economic activity from tax cuts.

The British Chamber of Commerce has also called on the Chancellor to alleviate the tax burden for business. At meeting with Brown on Friday, the BCC asked for "reassurance that the tax burden will not be increased" when the budget is announced later this month.

“The days of British businesses just competing with each other are long gone. The reality is that many of our firms are now facing competition from the likes of China, India and other emerging economies," observed Bill Midgley, President of the British Chambers of Commerce, ahead of the meeting.

“The Chancellor has an opportunity to create a better environment for British firms to do business, by not increasing the tax burden and instead offering incentives to encourage investment. In particular the Government should consider how the UK’s corporation tax rate could be reduced," he added.

According to the BCC, the UK has dropped from having the 9th lowest corporation tax rate a decade ago, to now having the 16th lowest. This means that British businesses are paying 10 per cent more than the average for the EU’s 10 new member states and 5 per cent more than the average for the whole of the EU.

Concurring with the IoD, Mr Midgley argued that a tax will boost economic activity, leading to a probable rise in tax revenues rather than a decline.

“In the countries where the corporation tax rate has been reduced in the last five years, the vast majority have seen an increase in their total tax receipts, as more companies choose to invest," he noted.

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