Corporation tax and the political divide

The coalition government have already reduced the main rate of UK corporation tax by a quarter, during their term of office, with a proposed further reduction fro 21% to 20% to take effect from April 2015. This is regarded as "a central part of the government's economic strategy".

George Osborne is pressing on with proposals to reduce the annual corporation tax bill for UK businesses by £8billion by 2016-17 described by him as "the largest reduction in the burden of corporation tax in our nation's history".

However, the Financial Times reported last week that the cuts to corporation tax are costing more than £5billion a year, requiring funding from elsewhere in the Budget. This is quite a sensitive issue at a time of spending cuts.

Richard Murphy, director of Tax Research UK (who advises the Trade Union Congress) is critical of the policy in that it is succeeding in multinationals like Fiat and Pfizer relocating their holding companies to the UK but does not bring jobs or operations to Britain that would result in a further boost to our economy.

The Labour party has announced it would scrap the planned further 1% reduction in corporation tax. The Shadow Chancellor, Ed Balls stated that the UK should offer the most competitive corporation tax rate in the G7, which contrasts with the governments aim of the most competitive corporation tax rate in the G20.

Reading further into this, Canada is the next country in the G7 league table and has a corporation tax rate of around 24%.

Does this suggest that a labour government would look to raise corporation tax rates to a similar level?

It appears that this could be a key issue in tax campaigning ahead of the May 2015 general election.

Please do not hesitate to contact Scott Burkinshaw if you would like further information.