Where the tax falls

The US and Japan have the highest rates of corporation tax in the world.

The Tory right might be aggrieved by George Osborne's failure to scrap the 50p rate of income tax but it can take some comfort from his plans for the UK's corporation tax. The Chancellor's pledge to reduce the headline rate to 27 per cent this April and to 24 per cent by the end of this parliament will give Britain one of the lowest rates in the G20.

In 1973, corporation tax stood at 52 per cent but it has since been reduced by Conservative and Labour governments alike, in an effort to attract inward investment. Over the course of her premiership, Margaret Thatcher cut the tax to 34 per cent and John Major reduced it further to 31 per cent. In his final budget as chancellor, Gordon Brown cut the tax to 28 per cent, a reduction funded by the ill-fated abolition of the 10p tax band. In what some would claim as a vindication of the Laffer curve, revenues from corporation tax rose from 5.4 per cent of the total tax take in 1979 to 7 per cent in 2009, though a likelier explanation is the decline in wages as a share of GDP (from 64.5 per cent in 1975 to 53.2 per cent in 2008) and the concurrent rise in profits.

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Ireland's much-cherished tariff of 12.5 per cent remains the lowest in the OECD, but the country is under increasing pressure from France and Germany to raise the tax.

A recent strategy paper by Angela Merkel's Christian Democratic Union suggested that "distorting" rates should be abolished. The Fine Gael leader, Enda Kenny, who is likely to become Taoiseach, said he would not "concede any movement".

Surprisingly, the countries with the highest rates of corporation tax are the United States (39.25 per cent) and Japan (39.5 per cent), the largest and the third-largest economies in the world.

George Eaton is senior online editor of the New Statesman.

This article first appeared in the 28 February 2011 issue of the New Statesman, Toppling the tyrants