The Institute for Public Policy Research (IPPR) said a “race to the bottom” in the basic tax rate on company profits has failed to boost investment and economic growth in Britain over the past 15 years. Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, argue that lower corporate tax rates could unleash an investment boom in Britain to help push economic growth towards the target rate of 2.5% a year. Kwarteng will confirm more details about the tax cuts on Friday in a planned “fiscal event” or mini-budget. But the IPPR said the cut in the nominal interest rate from 30% in 2007 to 19% in 2019, orchestrated by former chancellor George Osborne, had not spurred higher private investment or faster economic growth. Despite repeated tax cuts to the lowest rate in a century, the UK fell behind Italy and Canada to rank with the lowest private sector investment in the G7 as a share of national income. The following year, the UK was ranked 28th for business investment out of 31 members of a wider group of developed countries in the OECD. Studies have shown that corporate tax cuts used by successive Conservative governments have had little effect on business investment and economic growth, undermining the free-market Tory argument that such tax breaks pay for themselves. Cuts to corporation tax came at a net cost to the exchequer of nearly £73 billion between 2010 and 2018, according to research by the Social Market Foundation. In just one year the increase in business investment offset the cost. Business investment has flattened in recent years amid concerns about Brexit, post-Covid, and a challenging economic outlook. Official figures show the level of investment remains 5.7% lower than it was before the pandemic, while economists warn that rising energy costs and high inflation will limit spending. Governments around the world last year pledged to end a race to the bottom on corporate tax, saying it had deprived national coffers of revenue to fund vital public services while benefiting multinational corporations. Almost 140 countries, including the UK, have agreed to set a minimum interest rate of 15%. The IPPR report will raise fresh questions about Kwarteng’s desire to scrap a planned rise in corporate tax to 25% starting in April, which had been set in motion by former chancellor Rishi Sunak. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. Urging the government to consider alternative ways to boost investment and economic growth, the left-wing thinktank said targeted corporate tax cuts and a commitment to an industrial strategy would have a bigger impact. George Dibb, head of the Center for Economic Justice at IPPR, said: “Corporate tax cuts are simply the continuation of a failed race to the bottom that has not worked for the UK economy. Tax cuts are not a magic bullet for increasing investment and growth.” Cuts to the basic corporate tax rate are not seen as a priority for many business leaders, who are pushing for capital investment relief to help encourage productivity-enhancing spending. “If the government was serious about boosting investment, it would listen to businesses who want a serious economic strategy to support growth, boost innovation and boost our low productivity. Instead, it believes it can cut taxes and deregulate its path to growth, which has failed in the past,” Dib added.
