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Social Justice

Liz Truss told cutting corporation tax ‘will not boost the economy in the cost of living crisis’

The UK has among the lowest rates of business investment of developed countries – despite cuts to corporation tax

Liz Truss has been told cutting corporation tax is not a “magic bullet” to boost the economy in the cost of living crisis.

The UK had the lowest rate of business investment of any G7 economy in 2019 despite cutting corporation tax, the Institute for Public Policy Research (IPPR) has warned.

George Dibb, head of the Centre for Economic Justice at IPPR, said slashing corporation tax is a “continuation of a failed race to the bottom that hasn’t delivered for the UK economy”.

Former chancellor Rishi Sunak planned to increase corporation tax, from 19 per cent to 25 per cent, in April 2023. Truss and her chancellor, Kwasi Kwarteng, plan to cancel that. Kwarteng will announce more details on the plans in Friday’s mini-budget.

They argue it will lead to a boom in business investment and help drive economic growth – with a goal to boost the economy by 2.5 per cent each year.

Speaking from New York, where she is attending the United Nations General Assembly, Truss told Sky News on Tuesday: “If we put up taxes, if we have arbitrary taxes on energy companies, if we have high corporation tax, we’re not going to get that investment and growth.”

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She added: “We should be setting our tax policy on the basis of what is going to help our country become successful, what is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”

Truss said she was “prepared to be unpopular” in setting out her plans for growth. But Dibb said: “Tax cuts are not a magic bullet to increase investment and growth. In fact, despite having some of the lowest levels of corporate taxation, business investment in the UK is the lowest in the G7.”

The corporate tax rate was slashed from 30 per cent in 2007 to 19 per cent in 2017, where it currently still stands. Business investment in the UK fell to the lowest rate of any G7 economy in 2019, behind Italy and Canada. 

The UK is also “consistently” ranking among the lowest rates of investment among developed countries in OECD (the Organisation for Economic Co-operation and Development). In 2020, the UK ranked 28th for business investment of 31 member countries. 

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Dibb added: “If the government were serious about boosting investment, it would be listening to businesses who want a serious economic strategy to support growth, boost innovation, and increase our low productivity. Instead, it thinks it can cut tax and deregulate its way to growth, which has failed before.”

The IPPR is calling for the government to “commit to a proper, wide-ranging strategy of informed policy that seeks to increase investment and productivity by removing barriers to growth and fostering opportunities for investment”. 

The experts are also urging ministers to adopt a whole-government approach to growth, stop “chopping and changing” between policies and target tax reductions to avoid them being over-costly. 

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Labour MP Margaret Hodge, who is also the chair of the APPG on anti-corruption responsible tax, said on Twitter: “Big week incoming for Trussonomics and the first signs don’t look good. 

“New research by the IPPR shows slashing corporation tax will likely not lead to more private sector investment. In 12 years of Tory rule we’ve had the lowest corp tax rate in the G7 and often the lowest investment.”

Alex Cobham, chief executive at the Tax Justice Network, added: “Great new work from IPPR today, confirming what every single policymaker and commentator must surely know by now: cutting corporate tax does not stimulate investment or growth (but does cost revenues and exacerbate inequalities).”

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