Matthew Sinclair

The Sunday Essay: How cutting corporate tax rates raises revenue

Many thanks to Matthew Sinclair, of the Taxpayers’ Alliance, for the Sunday Essay below.  We accept Sunday Essay submissions from any of our readers – be they MPs, policy wonks or nothing to do with politics at all.  For more information on how to submit an essay, please click here – Pete Hoskin

With the public finances deep in the red many are arguing that there simply isn’t the money for tax cuts.  Britain has one of the largest deficits in the developed world and, as the economic slowdown leads to greater unemployment, borrowing could easily spiral out of control.  However, maintaining Britain’s high tax rates is not the way to control that deficit.

Spending has increased by around £30 billion at each Budget for the last five years.  That has created deficits despite a strong economy and increases in taxation on a broad range of activities.  Controlling spending is the essential step that any politician hoping to reduce the deficits has to take.  Even if taxes were pushed up that would only delay the reckoning with the momentum that a decade of extravagant spending in the public services has built up.

While it might be tempting to look at the public finances and conclude that we can’t afford tax cuts, the truth is that we can’t afford high tax rates.  Britain needs to be an attractive place to do business, now more than ever.

Over the last ten years Ireland has cut its corporate tax rates and revenues have grown far faster than they have in the United Kingdom.  Of course, people might argue that Ireland’s achievements cannot be replicated here because Ireland is smaller, enjoyed EU subsidies or enjoyed some other advantage.

A TaxPayers’ Alliance report released this week shows that other countries have enjoyed similar increases in revenue following cuts in corporate tax rates. 

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