The case for keeping business taxes low

Why should business pay tax at all? That’s a provocative but forlorn question to ask in Budget week. Business pays corporation tax on profits because that’s what voters expect, partly because many are conditioned to believe profit is a sin and partly because all would prefer to pay less tax themselves. Investors pay tax on capital gains because — as the American bank robber Willie Sutton said of his crimes — that’s where the money is. And companies pay more tax as business rates on premises because that’s the easiest way to collect contributions towards public services from which they benefit — but it’s also an easy levy to relieve at times, like now, when the private sector needs help.

Those are the principles with which the Chancellor was wrestling last weekend, while on one side business lobbyists urged him to rely on a rocket-shaped recovery to rebalance the public finances and on the other, Lords Clarke and Hague declared tax rises, corporate and personal, to be the only righteous path. Rishi Sunak’s aim to increase corporation tax rates over time from 19 per cent towards the international average of 24 or 25 per cent has been well signalled, as has his intention to harvest more capital gains tax. Such rises may make personal tax hikes more palatable because business is seen to share the pain. But are they really worth the candle?

Here’s a killer fact: the portion of total UK tax receipts in 2019/20 that was paid by companies was just £52 billion of corporation tax plus £29 billion of business rates, representing one tenth of a total national tax take of £825 billion; put another way, the corporate tax bill amounts to less than 4 per cent of GDP. This year, with reduced profits and business rates relief, it’s likely to be lower.

Let’s remember that personal taxes are part of a democratic contract by which voters pay for government, but corporate taxes and their accompanying grants, reliefs and allowances are something else: not a revenue fountain but a management tool.