Corporation tax cuts do not create jobs, says TUC

Brendan Barber, TUC General Secretary

Low corporate tax rates reduce revenues but fail to create jobs, according to a new TUC report published today (Saturday). The TUC report Corporate tax reform and competitiveness, written by chartered accountant and tax specialist Richard Murphy, warns that recent tax reforms and ongoing reductions in the headline corporation tax rate will reduce vital tax revenues without any significant benefit to ordinary taxpayers.
The report cites data from OECD countries to show that the UK enjoys an extremely competitive tax rate. More than 90 per cent of UK businesses pay the small business rate of 20 per cent while the effective corporate tax rate for large companies is currently estimated by PriceWaterhouseCoopers to be 23.2 per cent, far lower than the OECD average of 26.5 per cent.
Previous TUC research has estimated that the effective corporate tax rate is lower than 23.2 per cent and has been falling by 0.5 percentage points a year for the last decade. It is likely that many multinational corporations are now paying a lower rate of corporation tax than UK small businesses, says the TUC.
The report also compares corporate tax and employment growth rates between 1997 and 2010 across OECD countries and finds no strong correlation between low taxes and high employment or GDP growth.
The study suggests that at a time of constrained public finances, the economic benefits are not significant enough to justify tax cuts of the scale that the government has embarked upon, particularly given the UK’s already low corporate tax rates. Cutting corporation tax to attempt to stimulate growth is a poor economic strategy, says the TUC.
The report highlights recent changes to tax policy that have encouraged further tax avoidance and the channelling of profits away from the UK.
The last government agreed that in exchange for tougher Controlled Foreign Company (CFC) rules, from April 2009 any dividends paid by foreign subsidiaries to UK parent companies would not be subject to UK tax. But while the tougher CFC rules have not yet made it into law, the new rules on dividend payments have weakened the UK tax base by encouraging companies to move profits out of the UK, says the TUC.
With corporate tax receipts expected to fall as a proportion of the total tax take from April 2012, and the estimated 15,000 job losses across HMRC making it even harder to monitor the flow of profits from the various subsidiaries of multinational companies, growing tax avoidance could undermine the government’s deficit reduction targets and put further pressure on spending cuts, the TUC warns.
TUC General Secretary Brendan Barber said: “The government has been seduced by employer calls for more corporate tax cuts. But while everyone wants to pay less tax, from multinational corporations to ordinary taxpayers, the argument that simply cutting corporation tax will fuel jobs and growth does not stand up to scrutiny.
“UK corporate tax rates are already extremely competitive. And while some people, including the Chancellor, have talked about emulating the Irish economy’s aggressive low tax policies, its current woes suggest this is not a sustainable economic model.
“Big business has been steadily cutting its effective tax rate every year for the last decade, even though headline rates were fixed for much of this period. Despite pledging to crack down on tax avoidance, recent reforms and huge job losses at HMRC mean that tax dodging opportunities are now greater than ever.
“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 though tax rises and reduced public services.
“The government must stand up for hard-pressed workers and enforce a fairer tax regime and a fairer and more sustainable approach to securing economic growth.”