Low UK corporation tax has failed to boost investment

LONDON (Reuters) – Britain’s low headline corporate tax rate has failed to boost business investment, which lags all of its major peers, according to a report on Tuesday as the government is preparing to reverse a planned rise.

Britain’s 19% corporate tax rate – the lowest of the big wealthy nations in the Group of Seven (G7) – was due to rise to 25% in 2023 under plans announced last year by the former minister of Finance Rishi Sunak.

However, opposing the rise was an important part of Liz Truss’ successful campaign to defeat Sunak in the contest to succeed Boris Johnson as leader of the Conservative Party and British Prime Minister.

New Finance Minister Kwasi Kwarteng is expected to confirm this in an emergency budget statement on Friday, where he gives more details of Truss’ plan to support the economy in the face of soaring energy bills.

Truss said during his campaign that keeping corporate taxes low was key to attracting investment, but a report by the Institute for Public Policy Research (IPPR) showed that past cuts in the tax rate had not led to more investment.

Britain cut its headline corporate tax rate from 30% in 2007 to 19% in 2017, but in 2020 private sector investment was the lowest in the G7 at 9.8% of gross domestic product . Out of 31 mostly wealthy OECD countries, Britain had the fourth lowest business investment in 2020.

“The corporate tax cut is just the continuation of a failed race to the bottom that has not paid off for the UK economy,” said George Dibb, director of the Center for Economic Justice. IPPR, which describes itself as a progressive think tank.

Overall corporate tax rates do not always give a clear idea of ​​the overall corporate tax burden in a country, and some high-rate countries offer blanket exemptions.

Before stepping down as finance minister last month, Sunak was working on measures to reshape corporate taxation to promote investment.

The story continues

Weak business investment is one of the main reasons given by economists to explain the low productivity and very slow growth in living standards since the late 2000s.

Weak demand after the global financial crisis, followed by years of uncertainty over the consequences of Brexit, are among the reasons economists give for the poor performance of UK investment, as well as difficulties in measuring investment in certain service industries in which Britain specializes.

(Reporting by David Milliken, editing by Andy Bruce)