Less is more

In order to increase tax revenues  the Treasury is faced with a conundrum:

  • To increase rates of tax charged and hope that this does not prove to be a disincentive to increase profits and investment, or
  • To decrease rates of tax charged and hope that this proves to be a stimulant to business growth.

The Financial Secretary, David Gauke, recently made the following remarks at an international tax conference:

“The results we are seeing on the ground since we started cutting Corporation Tax have been very encouraging. We’ve seen business investment increasing – with a record number of inward investment projects last year – and some early signs of improvements in productivity…

And, interestingly, we’re also seeing Corporation Tax receipts strengthening.

Between 2010 and 2014 – that is, during the time that we cut the headline rate from 28% to 21% and cut the small companies rate – annual receipts increased by 12%.

And if you strip out the financial services sector (where receipts have been heavily affected by losses built up in the financial crisis), Corporation Tax receipts rose by 16% between 2010 and last year.

That’s a real terms increase in receipts over a period where the headline rate has been cut by a quarter.”

So maybe less is more?