LONDON (Reuters) – Britain’s low key corporate tax rate has failed to boost business investment, which lags behind that of its main peers, a report on Tuesday said as the government prepares to reverse a planned hike.
Britain’s 19% corporate tax rate – the lowest in the Group of Seven major and wealthy nations – was set to rise to 25% in 2023 under plans announced last year by former finance minister Rishi Sunak.
However, opposition to the ascendancy formed a large part of Liz Truss’ successful campaign to defeat Sunak in the competition to succeed Boris Johnson as Conservative Party leader and British Prime Minister.
New Finance Minister Kwasi Koarting is expected to confirm this in an emergency financial statement on Friday, providing further details of Truss’ plan to support the economy in the face of rising energy bills.
Truss said during her campaign that keeping corporate tax low is vital to attracting investment, but a report from the Institute for Public Policy Research (IPPR) showed that previous tax rate cuts have not led to more investment.
Britain lowered its main corporate tax rate from 30% in 2007 to 19% in 2017, but in 2020 private sector investment was the lowest in the G7 at 9.8% of GDP. In the 31 mostly rich OECD countries, Britain had the fourth-lowest business investment in 2020.
“The corporate tax cut is just the continuation of a failed race to the bottom that has not delivered the British economy,” said George Deeb, head of the Center for Economic Justice at IPPR, which describes itself as a progressive think tank.
Major corporate tax rates do not always give a clear sense of a country’s overall business tax burden, and some countries with higher rates offer broad exemptions.
Before resigning as finance minister last month, Sunak had been working on measures to reshape business taxes to encourage investment.
Low business investment is one of the main reasons economists give for poor productivity and very slow growth in living standards since the late 2000s.
Weak demand after the global financial crisis, followed by years of uncertainty about the consequences of Britain’s exit from the European Union, are among the reasons that economists give for the poor performance of investment in Britain, along with the difficulties of measuring investment in some service industries in which Britain specializes.