This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.  

Osborne Urged To Slash UK Corporate Tax

Friday, February 3, 2012

High corporation tax rates penalise the only organisations capable of driving economic recovery in the UK, according to the Centre for Policy Studies (CPS).

According to a new report by the think tank, Chancellor George Osborne should slash the headline rate of corporate tax from its current level of 26% to 20% in his March Budget. The report's author, Research Fellow David Martin, argues that cutting the rate could do much to boost growth and international competitiveness. Martin also believes that Osborne could at the same time announce his intention to reduce it even further – to 15% or even 10%, once the appropriate anti-avoidance measures are in place.

In his report, Martin points out that the main rate of corporation tax has gradually been falling in the UK, from 52% in 1982 to 26% today, and shows that this rate cut has been accompanied by an increase in the revenue corporate tax generates for the Treasury. In 1982-83, it yielded revenues equivalent to 2.0% of GDP, whereas in this financial year, the Treasury expects a yield 2.8% of GDP (or GBP43.2bn). Martin concludes that dropping the rate still further would boost business confidence, encourage new investment by businesses (as it would improve net returns) and would send a strong signal that the coalition government is taking the supply-side measures necessary to restore growth.

It would also represent a major simplification of the tax system. Martin states that if the tax base was defined as business profits, then separate rules could be swept away, along with calculations for different sources of income. Complex rules for aggregating the results of these calculations, and for how profits and losses can be offset, could also be abolished.

In addition, lowering the rate could have a significant “wealth effect”. Martin notes that, as one of the key measures of assessing the value of a company is the P/E multiple (the price earnings multiple), if earnings per share are enhanced because of a lower tax charge, the value of equities will tend to rise over time (assuming an unchanged P/E multiple). The report argues that higher share prices benefit most corporate pension funds (particularly through reducing the actuarial deficit), life assurance companies, other institutional investors and unit and investment trusts. As a result, private individuals will thereby achieve a higher valuation of their equity investments through rising share prices which potentially enhance consumer confidence, adding to the buoyancy of the economy.

Lastly, a 20% corporate tax rate could heighten the impact of any further Quantitative Easing (QE) – or possibly even reduce the need for more QE. Martin shows that the use of QE by both the Bank of England and the Federal Reserve has tended to result in higher equity prices, thereby enhancing consumer confidence through the “wealth effect”. According to the report, a reduction in corporate tax should achieve precisely the same effect. Moreover, it is felt that the effect could be leveraged by an announcement of an intention to reduce the rate further, as it would result in an upward re-rating of P/E multiples, caused by greater investor confidence in the regime of lower corporate tax rates.

Commenting in Conservative Home on the proposals, CPS Director Tim Knox, wrote: "We have heard rather a lot recently about how we must not tolerate high rewards for failure. But there is a logical corollary to that particular line: that we should be equally vehement about not imposing high penalties on success. And that is what the tax system does, not just on those individuals who pay higher rate taxes but also on business."

"For Corporation Tax – a tax on business profits – is effectively a tax that is only paid by successful businesses. It is money taken by the state from highly productive enterprises, money that could otherwise have been reinvested in new ventures. And it is money that is then consumed by the state, notorious for its low level of productivity. In this way, the state penalises the only organisations which can get us out of the hole that we are in."

"The potential benefits – economic, fiscal and political – are huge; the downside is limited. So the right question is not: can we afford to do this? But: can we afford not to cut Corporation Tax to 20%?", Knox concluded.

Mailing List

Click here to manage your mailing list preferences, or view our privacy statement.

The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions


Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation


Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees


Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees


Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax


Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision


Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment


Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations


Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations


Madeira: Legal Framework and Formation Rules and Fees


Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004


Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment


Monaco: Legal Framework and Formation Rules and Fees


Nevis: Legal Framework and Formation Rules and Fees


Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama


Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance


Vanuatu Legal Framework and Formation Rules and Fees

Latest News

BVI Financial Firms Need To Develop New Niches
BVI Finance, the financial services industry promotional agency, has said the industry must actively adapt to target new opportunities and promote new offerings internationally.

ADGM Revises Pooled Fund Capital Req's
Abu Dhabi Global Market, the low-tax international financial center, has revised the capital requirements applicable to managers of collective investment funds, with effect from April 10, 2017.

ADGM Consults On Allowing REITs
Abu Dhabi Global Market, the low-tax international financial center, is consulting stakeholders on plans to allow the establishment of private real estate investment trusts.

Gibraltar To Offer Foundations
Gibraltar's Parliament recently passed a bill permitting the establishment of Private Foundations.

Gibraltar Acts To Preserve QROPS Status
Gibraltar has made new pension regulations to maintain its attractiveness as a jurisdiction from which to transfer UK pensions.

Australia Consults On Taxation Of Stapled Structures
The Australian Treasury has launched a consultation on the tax consequences of the re-characterization of trading income derived through the use of stapled structures.

Australian DPT Legislation Passes Senate
The Australian Senate has passed legislation to introduce a diverted profits tax from July 1, 2017.

Guernsey Funds Sector Grew In 2016
The total value of funds business in Guernsey grew by more than GBP28bn (USD32.5bn) last year.

New Zealand Explains Foreign Trust Disclosure Changes
New Zealand has published guidance on the increased disclosure requirements for foreign trusts with New Zealand-resident trustees.

Canadian Budget Focuses On 'Tax Fairness'
The tax measures contained in Canadian Finance Minister Bill Morneau's second Budget are focused on closing loopholes, cracking down on tax evasion and improving tax reliefs for the "middle class."

Jersey Regulator Issues AML/CTF Funds Guidance
Jersey's financial services regulator, the Jersey Financial Services Commission, has issued new anti-money laundering and countering the financing of terrorism guidance for Funds and Fund Operators.

More Tax Hikes For UK Taxpayers In 2017 Budget
The UK Budget, released on March 9, 2017, featured tax measures to, among other things, hike taxes on self-employed workers, further close avenues for legal avoidance, and defer mandatory digital tax reporting until April 2019.

ACOSS Submits Recommendations For Australian Budget
The Australian Council of Social Services has urged that the Government abolish ineffective tax concessions, introduce a sugary drinks tax, and scrap its company tax proposals.

MEPs Call For Wider Access To Beneficial Ownership Data
EU citizens would be able to view information in registers of beneficial ownership without having to demonstrate a "legitimate interest," under proposed amendments the Anti-Money Laundering Directive.

New Zealand Tax Changes Enter Into Force
A Bill including provisions to simplify New Zealand's tax processes, reduce compliance costs for smaller businesses, and tighten foreign trust disclosure rules received Royal Assent on February 21.