Why corporation tax cuts are a waste of money

A new study shows that George Osborne’s tax cuts will do little to create growth and jobs.

Whenever George Osborne is asked to produce something resembling a growth strategy, he cites his plan to reduce the headline rate of corporation tax to 23 per cent by the end of this parliament (it fell from 28 per cent to 26 per cent in the Budget).

Osborne recently boasted to the Institute of Directors that his decision to "very aggressively" cut corporation tax had been "noticed around the world". The Chancellor's hope, presumably, is that his tax cuts will revive an economy that, under his stewardship, has not grown for six months.

But today's TUC report on the subject, written by Richard Murphy of the excellent Tax Research UK blog, suggests that there is only a weak relationship between tax rates and growth. The study, which looked at OECD member states between 1997 and 2010, found that at most 7 per cent of growth differences (see graph below) can be explained by differences in tax rates.

In other words, 93 per cent of the variation is explained by other factors.


As Murphy writes, "Tax rate differentials of between 27 per cent and 40 per cent over a period of 14 years are clustered so weakly around growth rates that these growth rates only vary between 1.9 per cent and 2.3 per cent per annum as a result."

He excludes Ireland and Luxembourg on the grounds that "the first two are both small states and tax havens" and excludes Japan and Italy on the grounds that they "have suffered such low rates of growth that they cannot be compared to the UK". In the case of employment (see graph below), just 6 per cent of the variation is due to differences in corporation tax rates.


Murphy's persuasive conclusion is that scarce resources should be devoted to policies that have a significant, rather than a marginal, effect on growth and jobs. Reducing corporation tax to 23 per cent is a poor use of £4.5bn. Osborne's tax-cutting agenda is founded on political dogma, not economic evidence.

PS: As I've noted before in a Data Hound column, there is no reason to believe that a corporation tax rate of 28 per cent was damaging the UK's international competitiveness. The US, for instance, has a headline rate of 39.25 per cent and Japan has a rate of 39.5 per cent.

George Eaton is political editor of the New Statesman.

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Theresa May’s stage-managed election campaign keeps the public at bay

Jeremy Corbyn’s approach may be chaotic, but at least it’s more authentic.

The worst part about running an election campaign for a politician? Having to meet the general public. Those ordinary folk can be a tricky lot, with their lack of regard for being on-message, and their pesky real-life concerns.

But it looks like Theresa May has decided to avoid this inconvenience altogether during this snap general election campaign, as it turns out her visit to Leeds last night was so stage-managed that she barely had to face the public.

Accusations have been whizzing around online that at a campaign event at the Shine building in Leeds, the Prime Minister spoke to a room full of guests invited by the party, rather than local people or people who work in the building’s office space.

The Telegraph’s Chris Hope tweeted a picture of the room in which May was addressing her audience yesterday evening a little before 7pm. He pointed out that, being in Leeds, she was in “Labour territory”:

But a few locals who spied this picture online claimed that the audience did not look like who you’d expect to see congregated at Shine – a grade II-listed Victorian school that has been renovated into a community project housing office space and meeting rooms.

“Ask why she didn’t meet any of the people at the business who work in that beautiful building. Everyone there was an invite-only Tory,” tweeted Rik Kendell, a Leeds-based developer and designer who says he works in the Shine building. “She didn’t arrive until we’d all left for the day. Everyone in the building past 6pm was invite-only . . . They seemed to seek out the most clinical corner for their PR photos. Such a beautiful building to work in.”

Other tweeters also found the snapshot jarring:

Shine’s founders have pointed out that they didn’t host or invite Theresa May – rather the party hired out the space for a private event: “All visitors pay for meeting space in Shine and we do not seek out, bid for, or otherwise host any political parties,” wrote managing director Dawn O'Keefe. The guestlist was not down to Shine, but to the Tory party.

The audience consisted of journalists and around 150 Tory activists, according to the Guardian. This was instead of employees from the 16 offices housed in the building. I have asked the Conservative Party for clarification of who was in the audience and whether it was invite-only and am awaiting its response.

Jeremy Corbyn accused May of “hiding from the public”, and local Labour MP Richard Burgon commented that, “like a medieval monarch, she simply briefly relocated her travelling court of admirers to town and then moved on without so much as a nod to the people she considers to be her lowly subjects”.

But it doesn’t look like the Tories’ painstaking stage-management is a fool-proof plan. Having uniform audiences of the party faithful on the campaign trail seems to be confusing the Prime Minister somewhat. During a visit to a (rather sparsely populated) factory in Clay Cross, Derbyshire, yesterday, she appeared to forget where exactly on the campaign trail she was:

The management of Corbyn’s campaign has also resulted in gaffes – but for opposite reasons. A slightly more chaotic approach has led to him facing the wrong way, with his back to the cameras.

Corbyn’s blunder is born out of his instinct to address the crowd rather than the cameras – May’s problem is the other way round. Both, however, seem far more comfortable talking to the party faithful, even if they are venturing out of safe seat territory.

Anoosh Chakelian is senior writer at the New Statesman.

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