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20 November 2019updated 08 Jun 2021 5:27am

How Boris Johnson misled voters over corporation tax in the TV debate

By George Eaton

Boris Johnson has form when it comes to mendacity. He was sacked from the Conservative shadow cabinet in 2004 for lying to party leader Michael Howard about an extramarital affair. He was rebuked by the UK Statistics Authority for claiming that Britain sent £350m a week to the EU. And he was ridiculed when he failed to “lie down in front of the bulldozers” to prevent the construction of a third Heathrow runway (instead flying to Afghanistan to evade a parliamentary vote on the issue). 

In last night’s TV debate, true to form, Johnson again misled voters. As the Conservative Party press office Twitter account masqueraded as “factcheckUK”, the Prime Minister informed viewers that Labour would “whack” corporation tax up to the “highest [rate] in Europe”. 

This, as I observed during the debate, was a flat-out lie. Labour would increase the main rate of corporation tax from 19 per cent to 26 per cent, the level it stood at in 2011. 

As statistics from the OECD show, this would in no sense be the highest rate in Europe. The UK’s corporate tax level would be lower than those of France (32 per cent), Portugal (30 per cent), Belgium (29 per cent) and Greece (28 per cent). Germany has a headline rate of 15 per cent but also levies a “solidarity surcharge” of 5.5 per cent and a municipal trade tax of between 14-17 per cent depending on the region.

At present the UK has by far the lowest corporation tax rate in the G7 and one of the lowest in Europe. Until recently, the Conservatives were committed to reducing the level further to just 17 per cent. But in his speech to the CBI on Monday, Johnson abandoned this pledge, instead vowing to spend the £6bn he estimates the government will save on the NHS. 

This decision exposed another untruth uttered by the Prime Minister. On 5 July 2019, he claimed that “every time corporation tax has been cut in this country it has produced more revenue”. In reality, as the Institute for Fiscal Studies has shown, the reduction in the headline rate since 2010 has cost £13bn. 

The IFS notes: “Corporation tax revenue has increased since 2010 even while the headline rate has been cut. But that does not mean that rate reductions have increased revenue.

“Much of the rise in revenue since 2010 is simply recovering from the effects of the financial crisis and recession. We would have expected a recovery in profits even if the corporation tax rate had not been cut.” 

Indeed, far from reflecting a Laffer Curve effect, with tax cuts producing higher revenue, the rise in the tax take reflects other charges imposed on corporations. As I recently noted, far from cutting taxes, the Conservatives have increased tax revenue to 34.4 per cent of GDP — the highest sustained rate since the 1940s and an ideological compliment to the left. 

In another era, Johnson’s lies — that Labour would raise corporation tax to the highest level in Europe, and that cuts have produced extra revenue — would have been stunning. Now, however, they merely feel wearily predictable.

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