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Britain cut corporate tax rates and corporate tax revenues went up

Cutting tax rates does not necessarily mean that tax revenues will fall. Indeed, they might move in opposite directions. Another piece of evidence for this comes from Britain. As was reported last week,

Corporation receipts have soared since the rate was cut as Britain’s booming businesses boost Treasury coffers.

Official figures from the Budget watchdog show the levy raised £57.6 billion last year, when firms handed over 19 per cent of profits.

That was 44 per cent more than in 2010 when corporation tax was 28 per cent. Experts last night said the figures were ‘indisputable proof that cutting taxes is a great way to boost revenues’, encouraging enterprise and stimulating economic activity.

And in a sign that the economy has continued to prosper since the Brexit vote, corporation tax receipts have risen 26 per cent since the EU referendum.

This is far more than expected by the Treasury, where gloomy officials were concerned the vote to leave the Brussels club would hit profits and the economy.

The cut in corporation tax, from 28 per cent in 2010 to 19 per cent now, is also seen as a driving force behind the sharp recent increase in employment, which has pushed income tax and VAT receipts higher as more people earn and spend more.

This has handed the Treasury funds to pay for vital services such as the NHS and police.

Tory MP John Redwood said: ‘Once again this shows the Treasury was far too gloomy in its post-Brexit forecasts. And once again, cutting a tax rate has led to a revenues bonanza for the Exchequer. When will they learn to adopt this approach more widely?’ Mark Littlewood, director general at the Institute of Economic Affairs, said: ‘These figures are indisputable proof that cutting taxes is a great way to boost revenues, as well as encouraging enterprise.’

Figures from the Office for Budget Responsibility, the official Treasury watchdog, show corporation tax raised £40.1 billion in 2009-10 when the rate was 28 per cent. Cut to 19 per cent, corporation tax raised £57.6 billion last year, up 44 per cent since 2009-10.

In the final year before the Brexit vote, when corporation tax was 20 per cent, it raised £45.6 billion. The £12 billion increase over the two years following the Brexit vote was far larger than expected by the OBR.

Sam Dumitriu of the free market Adam Smith Institute think-tank said ministers should reduce tax on firms which invest. He said: ‘A competitive corporate tax rate has made Britain a more attractive place to do business.

‘As a result multinational corporations, including Starbucks and McDonalds, have relocated European headquarters to the UK, bringing jobs, investment, and tax payments with them.’

John Phelan is an economist at the Center of the American Experiment. 

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